Internet-of-Things_Report

THE INTERNET
OF THINGS
DISRUPTING TRADITIONAL BUSINESS MODELS

With the Internet of Things, or IoT, we’re at the dawn
of a new revolution, which could be compared with
the digital wave that disrupted most industries not so
long ago. For although digitalisation clearly created
immense value for consumers, it was also very tough
on companies unable to adapt quickly enough.
So, how can we generate value in this new game?
The Internet of Things is everywhere. Wearables,
or portable technologies, and other health-related
accessories are among the first to come to the fore,
such as bracelets, watches, bathroom scales, and
others, with Fitbit, Jawbone, Withings, and iWatch.
Objects like cars, tractors, suitcases, fridges, garbage
cans – even the human body – are getting connected.
Yet machine-to-machine (M2M) interfaces are nothing
new: they’ve been around for over two decades. So,
what has changed? Significantly lower sensor costs,
an explosive rise of connectivity, increased computing
processorpower,andminiaturisationofthesecomponents
are all factors that augment innovation opportunities
and hence the range of connected objects.
The figures speak for themselves: in 2008, there were as
many connected objects as there were humans on Earth,
about seven billion. The number of connected objects is
expected to rise to between 50 and 100 BN by 2020, or
annual growth of over 30%. The current value added by
IoT is estimated to represent €400 BN, and should reach
€1.8 to €2.2 TN by 2020, or five times what it is today.
But beyond the figures, the burning issue is how this
value will be distributed. Who will benefit? One thing
is certain: there will be winners and losers. How can
companies avoid being disintermediated or attacked
in their market by newcomers or incumbent players
who manage to capitalise on the potential of IoT before
everyone else? How can they avoid the establishment
of de facto platforms able to capture data from several
different spheres and thus the corresponding value?
The possibility of generating data, collecting it, and then
using this information to create new services is opening
up new potential not just for existing players but also
for newcomers reinventing traditional business models.
Who will be the Uber or BlaBlaCar of IoT?
Is it so fantastic to imagine that Google could revolutionise
theworld ofinsurance?Couldit aggregatekeybehavioural
and lifestyle data collected through a powerful ecosystem
of wearable objects and connected objects in the home
and car, combined with data from the web, and relegate
insurers to the lower value-added role of risk bearer?
Imagine a world where we no longer have to go to the
supermarket or make grocery lists online, because
groceries are delivered directly to us – according to
our needs, which are identified from the data collected
in the home by a connected refrigerator. Does this
sound like science fiction? Think again.
The development of a data-based society will challenge
traditional business models in a big way. In our view,
four types of impact should be expected:
•• Impact 1. The dividing line between business sectors
and industries will shift and become blurred.
•• Impact 2. New cross-industry ecosystems combining
data from different sources will be established.
Will this move us toward a monopoly situation or
coexisting ecosystems?
•• Impact 3. The Internet of Things will accelerate the
establishment of services.
•• Impact 4. Customer relationships are becoming
hybrid and business-to-business-to-consumer
(B2B2C) is growing fast.
Anticipating the disruptions, being an active player in
these changes, and understanding new business models
and corresponding ecosystems are the keys to getting
the most out of the Internet of Things revolution.
EXECUTIVE SUMMARY
Copyright © 2015 Oliver Wyman. All rights reserved.

DISRUPTING TRADITIONAL BUSINESS MODELS
5 TECHNOLOGY IS AT A TURNING POINT
11 IMPACT 1
AS DIVIDING LINES BETWEEN INDUSTRIES BECOME BLURRED
17 IMPACT 2
ECOSYSTEM INTEGRATORS WILL CAPTURE VALUE
23 IMPACT 3
IOT IS ACCELERATING THE DEVELOPMENT OF SERVICES
29 IMPACT 4
NEW BALANCE IN CUSTOMER RELATIONSHIPS
34 HOW CAN YOU MAKE INROADS INTO SUCH A VAST SUBJECT?
IOT SCENARIOS IN NINE INDUSTRIES
38 INSURANCE
A NEW DIRECTION FOR INSURANCE
48 HEALTH
HEALTHCARE IS POISED FOR TECHNOLOGY-LED TRANSFORMATION
56 AIR TRANSPORT
STEP UP THE PACE OF GROWTH IN THE ALREADY FLOURISHING AIR TRAVEL INDUSTRY
62 RETAIL
TECHNOLOGICAL EVOLUTION, BEHAVIOURAL REVOLUTION
68 INDUSTRIAL INTERNET
A FOURTH INDUSTRIAL REVOLUTION?
75 SMART BUILDINGS
WHAT ARE THE IMPACTS? WHAT ARE THE STAKES?
82 UTILITIES AND SMART GRIDS
A NEW WORLD
90 TELECOMMUNICATIONS
BEYOND CONNECTIVITY?
101 SUPPLY CHAIN
WHY AND HOW TO DEPLOY NEW SOLUTIONS
THE INTERNET OF THINGSCONTENTS

The Internet of Things, or IoT, is everywhere and the phenomenon is accelerating.
Many industries will see profound effects on their historical positioning and
business models. The landscape will be remodelled as new ecosystems emerge.
Some players have already assumed their new position. Value will be created,
but there will be winners and losers. So, to stay in the race, you urgently need
to define your IoT strategy and anticipate future developments. In this first
chapter, we describe the main impacts of IoT in terms of business models, data
ecosystems, the migration of value toward services, and customer relationships.
We then recommend an approach to define your IoT strategy based on a central
principle: start with the end-to-end customer experience, and how they are using
products, to redefine your new value proposition and corresponding portfolio of
services before thinking about data and connected objects.
EMMANUEL AMIOT
DISRUPTING
TRADITIONAL
BUSINESS MODELS

The Internet of Things (IoT) – Internet
of Everything or Internet of Objects – is
generating a buzz and making the front
page. Wearables, or portable technologies,
and other health-related accessories are
among the first to come to the fore: bracelets,
watches, scales, and other activity trackers
(such as Withings, Fitbit, and Jawbone)
are blockbusters. In the mass market,
countless objects – cars, pressure-cookers,
washing machines, refrigerators, light
bulbs, utility meters, thermostats, suitcases,
dustbins, drugs, and even the human
body – are getting connected. The same
applies to machine tools, vehicle fleets,
planes, buildings, and many other areas of
business and daily life (see Exhibit 1).
More than just trendy gadgets, IoT is
triggering a real business model revolution,
based on data and service. This shift will
be faster than expected. However, we’re
not talking about just machine-to-machine
(M2M) but rather multiple connections
across machines, people, and processes.
And we’re no longer talking only about
connections to smartphones or internet
boxes but also about objects that can
interact with each other and generate
huge volumes of invaluable data, radically
transforming services and relationships
with users.
TECHNOLOGY IS AT
A TURNING POINT
Exhibit 1: IoT revolution in different industries and spheres of life
Retail
Health
Telecommunication
Financial
services,
insurances
Agriculture
Industry
Construction
Utilities
Transportation
Leisure
Building
Machine
City
House
Mobility
Environment
SELF
Source: Oliver Wyman
THE INTERNET OF THINGSDISRUPTING TRADITIONAL BUSINESS MODELS
Copyright © 2015 Oliver Wyman. All rights reserved. 5

This is about new features that will change
our daily lives at a dizzying pace as four
essential ingredients come together:
•• An object
•• A smart component – with sensor,
microprocessor, storage, software,
operating system, and so on
•• Connectivity
•• Huge volumes of data
TECHNOLOGY CAN
NOW BE ACCESSED
AND INTEGRATED
EVERYWHERE
Five trends are changing the game today
(see Exhibit 2) and will accelerate the
development of IoT and a more automated
society, based on the generation and
intelligent use of data in real time.
Significantly lower sensor costs. The
average cost of a sensor is now €0.5, just
half what it was a decade ago. This cost is
expected to drop below €0.3 by 2020, even
though sensors will still have all the
standard connectivity features, a wi-fi
connection, an accelerometer, and so on.
Explosive rise of connectivity. There are
currently about 1.8 BN 3G connections
and 500 MM 4G. By 2020, 3G will have
doubled and 4G increased fivefold as these
figures rise to 3.6 and 2.3 MM respectively.
Other forms of connectivity will also grow,
including wi-fi, Bluetooth, ZigBee, LoRa
(low-speed and low frequency connections,
consuming very little power), as well as more
proprietary protocols such as SIGFOX and
li-fi (light-powered connection). Objects
will communicate directly with each other,
without necessarily passing through
hubs. Between 2014 and 2018, the speed
of connection will be multiplied by four.
Starting in 2019-2020, 5G should be an
important accelerator of IoT by enabling the
optimisation of multi-network data traffic.
Increase in processor power. The computing
power of processors will continue to double
every 18 months. Moore’s Law (predicting
a doubling of processing power every two
years) will remain valid but the appearance
of quantum processors could accelerate
this pace.
Miniaturisation of all of these components.
Processors the size of a grain of sand (1x1x1
mm) – including a solar cell, wafer-thin
battery, memory, pressure sensor, wireless
radiowave component, and antenna – now
animate objects. Cameras the size of a grain
of salt, with a resolution of 250x250 pixels, are
already available. Sensors the size of a grain
of dust collect and transmit information on
temperature, pressure, and movement.
Development of the “cloud”. Cloud
computing is giving access to almost
infinite storage capacities, facilitating
data integration and combining this
data in megabases, thus enabling the
distribution of virtual applications.
Exhibit 2: IoT technology trends 2014-2020
IN 2020 (VS. TODAY)
Sensor cost € 0.3/captor
Wireless connectivity
Penetration rate of 4G multiplied
by five
Processor power x6
Miniaturisation
“Computers” the size of a grain
of sand
Cloud, storage, data x16 data volumes
Source Intel, GSA, GSMA, law Moore, IDC, ExtremeTech

MORE THAN
JUST TRENDY
GADGETS, NEW
IOT APPLICATIONS
ARE REVOLUTIONARY
The first IoT applications are already
astonishing, whether for the retail or business
market. The following are just a few examples.
Vehiclefleetsarebeingoptimised.Maximise
vehiclefleetusage,increasetheproductivityof
human intervention, reduce fuel consumption
by at least 10%, redefine itineraries in real
time depending on traffic and weather
conditions: Orange Applications for Business
and Océan (the geolocation specialist it
recently acquired) are already offering these
applications to construction sites, public
works, retailers, utilities, and others.
Supply chains are being revolutionised.
Instantaneous information as well as the
combination of data from various sources (like
temperature, humidity, verification when a
package is opened, truck capacity utilisation,
vehicle arrival time, and driver fatigue)
make revolutionary applications possible.
Caterpillar already does this, for example, by
tracking driver eye movements and fatigue.
Throughout the supply chain, players have
started integrating IoT into activities such as
planning, management of the last mile, and
storage. Bobcat, for instance, increased the
productivity of its connected forklifts by 20%,
with a return on investment in just 18 months,
while Amazon’s Kiva robots are reducing the
cost of preparing orders by 30%.
Smart cities are emerging. Optimised
parking space management with real-time
identification of free spaces has become a
reality, and smart lighting varies according
to daylight intensity and movement. Traffic
management can now be facilitated by a
precise view of traffic flows in real time. Every
big city is moving in this direction, from
Barcelona (recognised as the best smart city
in the world by Juniper Networks in 2015) to
Nice, Amsterdam, and New York.
Smart buildings are producing tangible
results. Selex ES solutions for connected
buildings send out recommendations for
real-time adjustments, identify inefficiencies,
allow preventative maintenance, and reduce
average energy consumption by 7%. Philips’
LED lighting fixtures are connected directly
to the Ethernet network and all have an IP
address. So any user with a smartphone and
IP address triangulation can be geolocated
by the lighting fixtures and thus control
their immediate environment (lighting,
temperature, and so on). Facility managers
receive real-time information on building
occupation, and cleaning staff know which
offices have been used since their last visit.
The connected factory is becoming a
reality. We are witnessing the emergence
of a new generation of production lines and
smart robots able to react to information
received in real time. Details such as order
status, characteristics of materials entering
the production line, and status of other
machines enable production systems to adapt
their parameters in terms of pace, quality,
descriptive labelling, packaging, and signage.
SAP and Festo AG are already developing
production lines that can produce either
remote-control units or cellphone cases on
demand, using the same plastic cases. The
improved synchronisation of production lines
and the resulting reduction in downtime is
reflected in 10% lower energy consumption
and 40% lower customised production costs.

Planes are getting connected and
are optimising their routes and fuel
consumption. Flight Efficiency Services is
the operational predictive maintenance and
optimisation system established by GE. A
multitude of sensors compile and analyse
engine performance data to optimise flight
and maintenance processes. Alitalia, for
instance, reports fuel economies of 1.5%
for its connected planes.
Shampoos are closely tracked.
Manufacturers of consumer products, such
as L’Oréal, are integrating more and more
radio-frequency identification (RFID) chips
into their products. Inventory management is
improvinginproductivityandresponsiveness.
Manufacturers are starting to understand
their product flow better than retailers do.
Retail is getting connected to help
shoppers. In Lille, Philips LED lighting
fixtures guide shoppers through
supermarket aisles based on their shopping
list. Carrefour’s C-Où (“Where is it?”)
application helps customers build their
shopping itinerary based on the products
they want to buy.
Preventative healthcare is becoming a
reality. The Withings bracelet is a gadget
opening the door to personal health.
Employee health and well-being services
are developing at record speed.
Industries like agriculture are, contrary
to popular belief, at the leading edge of
digital technology. Sowing is optimised
and crops are treated based on weather
forecasts, fields needing fertiliser are
identified by infra-red systems, and weeding
and harvests are mechanically assisted.
IOT STATISTICS ARE
ALREADY IMPRESSIVE
In five years, there could be five times
more connected objects generating
50% more value.
In 2008, the number of connected objects
equalled the number of humans on Earth,
that is to say about seven billion, each object
being equipped with multiple sensors.
Up from 15 BN in 2014, it is estimated that
the number of connected objects will rise to
between 50 and 100 BN by 2020, or annual
growth of over 30%.
Every second, 80 new objects connect to the
internet for the first time.
The value added by IoT is estimated to
represent €400 BN. This figure is expected
to rise fivefold by 2020 to reach between
€1.8 and €2.2 TN.
Data volumes will explode. In 2008, IDC
estimated that the internet contained
800 BN gigabytes of data. This is barely
the amount that 20 homes will generate in
2020. The brain of the mouse was modelled
in 2014, and forecasters estimate that even
the human brain will be modelled by 2030.
The pace at which data is generated is
phenomenal. It should also be noted that
75% of data will not be structured, and that
40% will come from sensors.
The share of IoT in global gross domestic
product (GDP) should rise from 1.5% in
2014 to 2.1% in 2020.

After 2020, these figures are expected to
grow exponentially. On several occasions in
the past, the penetration of innovations has
been largely underestimated. Didn’t Thomas
Watson, CEO of IBM, think in 1943 that there
would be a worldwide market for about five
computers? More recently, in 1999, peak
penetration of mobile phones in France
for example was estimated at 90%; today
the rate is 120%. Cisco, in turn, predicts
10,000 BN objects will be connected in 2030.
What appears certain is that it is impossible
to make such long-range predictions.
The level of investment in connected objects
is probably the most reliable indicator (see
Exhibit 3). It shows that we are now at a
critical turning point. One of the surest signs
that an industry is about to be structurally
transformed is the sudden surge of “tech”
entrepreneurs investing in it, supported by
private equity firms.
Ten times more venture capital was invested
in IoT in 2014 than in 2010 (€341 MM vs.
€34 MM). Major technological players have
also accelerated their investments. IBM
announced in March 2015 that it would
invest €3 BN in IoT between 2015 and 2017,
while Cisco is investing $1 BN in creating
a platform for IoT known as Intercloud. In
2014, Google acquired Nest, the global
connected thermostat leader, for $3 BN.
The same year, Facebook bought the Oculus
virtual reality company for $2 BN. In China,
Alibaba launched an IoT Smart Living
strategy in April 2015 and Baidu announced
that it could put the first autonomous car on
the market as early as 2015.
The pace of acquisitions is accelerating.
Companies have spent more on mergers
and acquisitions in the first four months of
2015 than during all of 2014, or $14.8 BN in
2015 versus $14.3 BN in 2014.
Exhibit 3: IoT trends
50
75
25
0
100
2012 2014 2016 2018 2020
NUMBER OF CONNECTED OBJECTS
IN BN (2012-2020)
Cisco
Gartner
IDC
Morgan Stanley
Siemens
x10
Venture capital IoT
in 2014 vs 2010
x3
IoT-related M&A
2013 vs 2014
x5
Value added by IoT
2014 to 2020
3.5 pts
Impact on French
GDP by 2020
More M&A
in the first 4
months of 2015
than in the 12
months of 2014
Source Gartner, Cisco, Morgan Stanley, IDC, Siemens, CrunchBase, TechCrunch, 451Research, Montaigne Institute

The real question is about the allocation
of the value generated by IoT. One should
naturally expect winners and losers, and the
disruption of existing business models.
We have experienced this with digital
transformation, which created immense
value for consumers and players who were
able to adapt quickly enough, but was
also rough on everyone else. The term
“uberisation” is now being bandied around;
IoT may become equally significant.
THE BOUNDARIES
BETWEEN
INDUSTRIES ARE
BEING CHALLENGED,
PROMPTING A
REVOLUTION IN
BUSINESS MODELS
The development of a data-based society
will challenge traditional business models
in a big way, and we can identify four
likely impacts.
IMPACT 1
The dividing line between business sectors
and industries will shift and become blurred.
The possibility of collecting and using new
datawillenableplayerstoexpandoutsidetheir
traditionalpositioning.Forinstance,automakers
will be able to expand into insurance by
collecting, aggregating, and analysing
driving data. Insurers, on the other hand, will
be able to manage customer pools actively.
IMPACT 2
New cross-industry ecosystems
combining data from different sources
will be established. Are we moving toward
a monopoly situation or coexisting
ecosystems? Quality data won’t be free of
charge. Imagine the power of ecosystems
able to combine data as different as the
weather, personal health information, and
behavioural indicators with aggregate data
on health for each population segment.
IMPACT 3
IoT will accelerate the establishment of
services. The migration to services (touched
upon in our report Digital Revolution:
New Customer Experiences, New Business
Models, New Transformations) is not a new
phenomenon but will be multiplied tenfold
by IoT, enabling the development of new
services. With IoT, the service dimension
characteristically precedes the object,
so that the Internet of Services must be
conceived before the Internet of Objects.
The Withings strategy is a perfect illustration.
IMPACT 4
Customer relationships are becoming hybrid
and “business-to-business-to-consumer”
(B2B2C) is growing fast. Alongside players
who will be in a position to reinforce their
customer relationships with intelligent
data collection strategies, others will be
disintermediated. Some businesses will
move from business-to-consumer (B2C) to
business-to-business (B2B), and vice-versa,
while B2B2C relationships will facilitate more
direct access to the end user.

IMPACT 1
AS DIVIDING LINES
BETWEEN INDUSTRIES
BECOME BLURRED
IOT IS RESHAPING BUSINESS MODELS

The possibility of generating, collecting, and
using data to create new services is opening
up new potential, not just for existing
players but also for newcomers reinventing
traditional business models.
There’s no need to panic but the risks mustn’t
be underestimated either. We don’t believe
in a monolithic scenario where Google
dominates every industry and has a finger
in every profession. What is more plausible
is the emergence of new players, now still
at the incubation stage. The following
examples illustrate potential disruptions
of the value chain in different industries:
insurance, retail, health, and energy.
INSURANCE
AUTOMAKERS ARE TAKING
ON CAR INSURANCE,
GOOGLE IS ENTERING THE
HOME SERVICES MARKET,
WITHINGS IS GOING
INTO HEALTH, TRIMBLE
INTO BUSINESS
The aggregation of essential data is
critical to the insurance business model.
The collection and use of great volumes
of data have long been the main barriers
preventing newcomers from entering the
market until now. The possibility of new
entrants aggregating key data to select
risks more efficiently or personalise prices
based on the assets insured, and especially
the characteristics of insurance subscribers
(lifestyle, behaviour, age, and so on),
effectively reshuffles the deck.
Premiums based on driving style (pay-how-
you-drive) and lifestyle (pay-how-you-live)
already exist. Insurers like John Hancock
have turned pay-as-you-live into a core value
proposition: the healthier your lifestyle, the
cheaper your insurance. (See Exhibit 4.)
Although these offerings are still fairly
consistent with existing models, they could
radically change the landscape tomorrow.
Just imagine:
Peugeot as car insurer. Insurers could lose
their grip on the car insurance customer
relationship if policies are integrated
directly into the vehicle purchase contract.
Automakers would then be the first to collect
data essential to pricing, and insurers would
become mere subcontractors.
Google as home insurer. By aggregating
key personal data (for example, on behaviour
and lifestyle) collected through a powerful
ecosystem of connected objects (in the
home, car, carried, or worn) and data from
the Web, Google could become a formidable
agent for risk selection and appraisal. Google
could then reverse auction batches of risks
to insure, relegating insurers to the role of
low-value-added risk holder.
Withings as health insurer. By analysing
the behaviour, lifestyle, and health
habits of its customers, Withings could
directly offer home, health, and personal
accident insurance.
Trimble as vineyard insurer. Agricultural
specialisation puts this tech and IoT
player a step ahead of the game. As a
result, Trimble is becoming an expert in
agricultural claims patterns.
Some of these examples smack of science
fiction but IoT represents a real risk for
insurers as they could lose a significant
share of their revenues. On the one hand,
pinpointing risk and enabling better
prevention will reduce the cost of risk and
the corresponding premiums. On the other
hand, the value captured by other players
with smart data could confine insurers
increasingly to the B2B side of the equation,
focused on risk management.

RETAIL
THE SUPERMARKET IS
BECOMING SECONDARY –
UBER DELIVERS GROCERIES
BASED ON YOUR
CONSUMPTION AND HABITS
The online supermarket is nothing
new. This isn’t what we mean. We’re
talking about a logistics provider who
revolutionises shipping to become your
main retailer. In neighbourhoods and whole
cities, an ecosystem is being created,
which is capable of capturing restocking
requirements and optimising distribution.
Connected objects are being used to collect
data, aggregate this data across different
spheres, and provide connected shipping.
It will no longer be necessary to go to
the supermarket or make a grocery list
on Ooshop. Uber delivers to consumers
according to their needs, identified directly
in the home with an entire ecosystem of
data collection partners. These partners
include ChillHub, whose connected fridge is
now equipped with sensors and tomorrow
will have cameras on GE’s IoT appliance
platform. With Amazon’s Echo or Dash,
consumers can dictate or scan their grocery
list, and washing machines can order laundry
detergent automatically before it runs out.
(See Exhibit 5.) New delivery providers
like Onfleet already combine orders from
different sites and optimise delivery rounds,
proposing a profitable on-top model.
Uber collaborates with Amazon Fresh.
Amazon’s objective is to attract customers
willing to pay a little more for the convenience
of a fresh produce delivery service. Extending
Amazon Fresh also enables the online brand
to acquire and retain customers in other
spheres – making profitability on fresh
produce almost a moot point. The impact
is enormous, and the figures speak for
themselves: with 2% earnings before interest
and taxes (EBIT) and 20% volume-based
variable costs, and 10% of volume transferred
from the offline to the online sphere,
traditional retailer margins will vanish.
Exhibit 4: Peugeot would become your car insurer, Google your home insurer
Manufacturers include car
insurance in a bouquet of
“on demand” mobility services
Google manages all home
services (insurance contracts,
support/assistance services)
Pay How You Drive
Customers pay
according to
their “actual risk”
Insurers would
become mere
“risk bearers/
solvency checkers”
“Reverse auctions”
(for insurers)
Allianz
AXA Aviva
Generali
Risk Risk
Source Oliver Wyman

AMAZON (OR WALMART?)
COULD ACQUIRE OR DEVELOP
AN UBER-TYPE SERVICE AND
REPLACE YOUR SUPERMARKET
Smart homes equipped with devices allowing Amazon to
detect what’s missing. Orders are placed automatically
and delivered by Amazon Services, using an “Uber-like”
delivery model.
Amazon
Dash Button
Dash
Replenishment
Service
Amazon
Dash wand
Amazon
Echo
AMAZON
UBER

HEALTH
IBM AND WELLTOK ARE
BECOMING YOUR PERSONAL
HEALTHCARE ASSISTANTS
Could a B2B player like IBM, very advanced
not only in the cloud and data analysis
but also in healthcare and the weather,
become a retail market player in the
healthcare industry?
IBM recently announced a $1BN investment
in the Watson Group, including $100 MM
intendedforstart-upsdevelopingapplications
on the Watson Developer Cloud. Just imagine
the impact when billions of personal data
records are connected to an analytical
platform like Watson, identifying the right
patterns and generating personalised
recommendations to improve well-being
and health. (See Exhibit 6.) In keeping with
this dynamic, IBM signed an agreement with
Apple on health and recruited numerous
professionals from B2C companies. What if
tomorrow IBM became a major B2C player
with an instrumental role in converging
these two spheres?
If IBM or Apple manages to convince patients
to open their medical file and share their data,
will these players be positioned to capture
the lion’s share of the value created in the
health sector?
Other players are emerging on the health
market. The American start-up Welltok, for
example, which raised $59 MM in 2014 then
$37 MM in 2015, provides customers with
fitness itineraries and healthcare treatments
from its CaféWell platform in partnership
with IBM. The symptoms detected by the
Simband bracelet from Samsung or a Vital
Connect biometric patch are combined with
personal behavioural data collected by Apple
Watch or using external factors provided by
Exhibit 6: IBM could conduct patient check-ups
SYMPTOMS
FEVER, HYPERTENSION,
OXYGEN
Philips, Medtronic,
Vital Connect, cue
PERSONAL DATA
CARDIAC ACTIVITY,
SPORT, NUTRITION
Apple Watch, Fitbit, Withings
EXTERNAL FACTORS
TIME, HUMIDITY,
POLLUTION
Nest, Weather Channel,
Honeywell
CONSULTATION
WITH A DOCTOR
RESEARCH AND
REMOTE HEALTHCARE,
DOCTOR’S APPOINTMENT
ZocDoc
IBM
WATSON HEALTH CLOUD
DIAGNOSIS
DISEASE DATABASE
Health insurance,
WebMD, NHS
Source Oliver Wyman

The Weather Company (IBM Cloud). This
convergence of individual and collective
data represents a real revolution. Indeed,
most health improvement initiatives do not
require a doctor’s intervention.
ENERGY
NEST-GOOGLE IS REDUCING
YOUR ENERGY BILL
The utility industry is among those
most affected by IoT, for example in the
residential market. New solutions are
coming from all sources: public service and
telecommunications (telecom) operators,
utility players, and new technological players.
Orange Homelive and AT&T Digital Life are
alreadyofferingenergyoptimisationsolutions,
compatible with any supplier or partner, like
Hive with British Gas. All of these offerings
require specific action by the customer.
Others, like Google or Actility in France,
could go much further. In the USA, Google
has a licence to purchase and distribute
power. Happy Hereford, the wind farm
of its subsidiary Google Energy, is the
second largest in this domain. Its new-
generation batteries are today providing
power storage solutions for the car, and
tomorrow will do so for the home. Its
family of thermostats – connected to
household equipment (such as washing
machines, so they start at the right time),
smart meters, and car battery recharging
terminals – is growing continually and
enabling the immediate and flexible
integration of network production capacity.
By becoming a power distributor that can
optimise the balance between demand
and production in real time, Google is in a
position to cause major disruption to the
business model (see Exhibit 7).
Exhibit 7: Could Google – or Orange – become your power service provider?
Renewable energy sources
2014-15
Nest
2014
Energy licence
2013-14
Google batteries
Rush-hour Rewards
Long-lasting electrical autonomy with
Google batteries
Communicating with Whirlpool
household appliances is now possible
A single hub to control
electronic devices
Source Oliver Wyman

All players are conscious that the capture
and use of data, and the identification of
attractive patterns, will create value.
That said, will this data be free of charge,
sold, or easy to collect? According to
Gartner, more than 30% of the data used
by companies in 2017 will come from
specialised service providers, which
naturally want to monetise this asset. How
do we collect this data? What strategy can
we implement while retaining the trust
of customers and protecting their private
information? Could de facto standards be
imposed, reinforcing the asymmetry of
access to information from which the digital
economy already suffers? We can improve
our understanding by distinguishing three
steps in the management of data:
1. Collection
2. Coordination
3. Analysis
ECOSYSTEM
INTEGRATORS WILL
CAPTURE VALUE
IMPACT 2

COLLECTION
DATA WON’T ALWAYS BE FREE
In B2C, mobile phones will remain a data
collection hub. The most widespread
method to collect personal data is through
applications on mobile terminals, which are
already stuffed with sensors (gyroscope,
accelerometer, GPS, digital fingerprints,
and so on). For example, the new Samsung
Galaxy S6 contains more than a dozen types
of sensors.
The mobile phone sensor market is expected
to grow annually by 19% on average from
now to 2018, rising $2.3 to $6.5 BN from
2012 to 2018. New sensors are constantly
being integrated into smartphones:
barometers, magnetometers, pedometers,
detectors of light, proximity, heart rate,
radiation, and humidity, for example. The
applications then capture all the data that
the smartphone has collected.
You probably can’t imagine the amount of
personal data you already provide without
knowing it. According to Accenture, 79%
of companies directly collect personal
data from their customers, for instance,
through online accounts. When you use
an application, it collects your internet
access data 90% of the time, your phone
number 65% of the time, and your contact
list 35% of the time (see Exhibit 8). Many
Android applications don’t even ask for your
explicit permission.
To use Facebook Messenger, for example,
you must provide a large amount of personal
data and give the application direct control
of your mobile phone.
Most consumers are willing to share their
data, since they derive a tangible benefit
from it. This is not expected to stop but will
be done more transparently with opt-in
Exhibit 8: Percentage of applications requesting data
access, 2014
100%20% 40% 60% 80%
Internet
Storage
Caller ID
Location
Contacts
Sound
PERCENTAGE OF APPLICATIONS
REQUESTING DATA ACCESS
Email account
Wi-fi
connection
Internet
data
Telephone
Battery
Applications
UBER
Location
UBER APPLICATION COLLECTS DATA
0%
Source: Uber, Oliver Wyman analysis

authorisations by type of data, granted by
users with greater awareness. According to
a Morgan Stanley study, 81% of users would
be willing to share their personal data if they
received an advantage in return, such as a
lower insurance premium. Data monetisation
will increasingly make consumers more
aware of the value of their data and thus more
likely to attempt to monetise it, for example,
through personal data intermediaries.
Some rare data should continue to be free,
but merely collecting information has little
value if there is no aggregation ecosystem to
utilise it properly.
AGGREGATION
MONOPOLIES, DE
FACTO STANDARDS, OR
COEXISTING ECOSYSTEMS?
The first digital revolution created an
asymmetry of information between new
players, like Google or Bookings, and
traditional players at the expense of the
latter. Will such an imbalance recur with
connected objects?
The subject is not technological, as there
is little doubt that open standards will
gradually become the norm. Under the aegis
of the World Wide Web Consortium (W3C),
protocols will interact extensively across
equipment, within networks, and in the cloud.
The Thread Alliance, led by Google,
integrates the application layer (or cluster
library) of ZigBee with Nest. Since 2014,
it has supported an open IoT vision, in
which objects don’t need applications to
interconnect and transmit data. This alliance
creates more bridges with other standards,
such as the Open Interconnect Consortium
of Intel and the AllSeen Alliance. The latter
promotes AllJoyn, an open source, open
standard platform conducted by the Linux
and Qualcomm foundation. Its objective is
to ensure the interoperability of equipment,
regardless of brand, network, OS, and so
on. Apple’s decision to open its ecosystem
and use Thread/ZigBee to support its
home automation solution, HomeKit, with
the iPhone as a control hub is a move in
this direction.
But beware, because these declared
intentions of opening up technology
must not hide the fact that technological
convergence by no means prevents the rise
of de facto standards. Specific platforms
may also become dominant because of their
aggregation capacity and the simplicity of the
Exhibit 9: A strategic control point, ecosystem aggregation of data starts with
data organisation
AGGREGATECOLLECT ANALYSE
ORCHESTRATE
SERVICE
Source Oliver Wyman

customer experience, akin to what happened
with Apple and Android. By nature, these
platforms will be able to incorporate data
from multiple sources, while the suppliers of
objects and IoT services will have access only
to their own data and possibly a negligible
share of information from other objects. These
platforms will thus acquire supremacy on
data, which will put them in a near-monopoly
position. They will then be free to sell this
data to third parties, utilise it and monetise
it themselves, and therefore deprive the
companies participating in their ecosystem of
a considerable opportunity to create value.
Although Android is currently an open
standard, middleware and application
layers (Google applications, for example)
use proprietary specifications. The Android
operating system (OS) installed on 80% of
mobiles worldwide is not the Android it was
at the beginning. De facto standards have
become widespread and the same thing
could happen in IoT.
Aggregating or combining relevant data
within the same sphere will become critical
(see Exhibit 9). Ecosystems are quickly
getting established (think of Google, Apple,
and Samsung), so latecomers will have a lot
of trouble modelling a system favourable to
their interests.
Big names joined the Nest/Dropcam
ecosystem during the Las Vegas CES in
January 2015, including Samsung, Somfy,
ARM, Pebble, Jawbone, Philips, and LG.
In April 2015, Apple launched HealthKit,
its health application, and Apple Watch.
Now being pilot tested, its connected
home management application, HomeKit,
has heavyweight support from Philips,
Honeywell, Haier, Netatmo, Withings, and
others. CarPlay, an on-board version of iOS for
vehicles, has been launched with Volkswagen,
Toyota, Renault, Peugeot, and Ford.
A sign that IBM is entering the retail market
is the partnership signed with Apple to
penetrate the corporate market with Apple
objects fed with IBM intelligence. Samsung
is lagging behind. Based on its own
operating system, Smart Home (announced
in January 2014) integrates Smart TV,
household appliances, and smartphones.
The mobile terminal is becoming the
residential hub used to control everything,
from the front door and the elevator to
home appliances.
These aggregations by sphere depend on
open and horizontal technical platforms
that enable the various verticals to design
professional applications (see Exhibit 10).
Horizontal IoT platforms like ThingWorx,
acquired by PTC in 2014, are growing
non-stop. They make it possible to
accelerate development and maintain IoT
applications by providing infrastructures
in software-as-a-service (SaaS) mode or
facilities where developers can come to
develop their applications. Between 2013
and 2014, ThingWorx revenues rose by
approximately 60%.
De facto standards have
become widespread,
and the same thing
could happen in IoT

Similarly, in March 2015, Microsoft
presented a project to personalise its Azure
cloud platform for IoT in three dimensions:
credit management, remote surveillance,
and preventative maintenance. This platform
will include services such as Azure Stream
Analytics, which identifies patterns by
analysing data flows, or Azure Intelligent
Systems service platform, designed to
interconnect electronic sensors and
other devices.
Within the residential and mobility sphere,
the question is about how to gain a foothold
in data access for the future and prevent a
small group of players from capturing the
lion’s share of the value. We feel that the key
is to build strong and attractive ecosystems
that offer enriching applications and a
simple customer experience. Users won’t
want to juggle ten different ecosystems,
but two or three at most. In the retail
market, this requires the creation of
trustworthy ecosystems aggregating the
services of different players. This can be
done by local players who already possess
valuable “trust capital”, such as a telecom
operator integrating automation and
security into the home.
Telecom operators have a special position in
the home. Recognised for their reliability and
security, they enjoy the trust of consumers,
so they will be able to market connected
residential home automation, security, and
energy solutions. Playing an aggregator
role, they will open up an extensive market
to the manufacturers of connected objects,
bringing them credibility and enabling them
to develop their services. However, Apple with
HomeKit and Google with its new operating
system for the home have similar intentions.
Exhibit 10: A monopolistic backbone or coexistence of integrator
ecosystems cutting across different industries?
• Bridges across protocols,
technological convergence
• Open standards do not mean
“no defacto standards”
• Several ecosystems driven by the
players with the greatest impact
on ecosystem performance,
with a simple and enriching
customer experience
myFox
Allianz
Whirlpool
Nest
Philips
Kiwatch
Legrand
Somfy
Honeywell
Netatmo
Withings
Haier
Mercedes
AXA
ORANGE
APPLE
GOOGLE
Jawbone
Source Oliver Wyman

In business and smart buildings, the same
ecosystem rationale should prevail. This
rationale requires designing vast libraries
of professional applications as well as
detailed knowledge of each profession.
Some companies, like Schneider Electric,
have started integrating all the verticals of
construction. This rationale is also applied by
Orange Business Services. Precise knowledge
of customer professions is therefore essential
to design business applications for fleets
of vehicles and construction sites, combat
theft on construction sites, or optimise
maintenance in services.
In the midst of such expansion, it is not
easy to secure a position in the market.
Despite the difficulty, a wait-and-see
attitude would be very risky. Every company
must soon clarify its strategy and the role
it wants to play. Builder of a multisector
ecosystem? Leader of a vertical ecosystem
integrating competitors? Or central player
in a powerful ecosystem?
ANALYSIS
VALUE IS SHIFTING TOWARD
PLAYERS WHO MAKE THE
BEST USE OF DATA
According to IDC, only 1% of data is
currently utilised. Although this rate
appears probable on average, there
are, however, significant differences
between players. Retailers don’t use much
information about sales slip, but Amazon
exploits all your data. Banks don’t utilise
the information they have on you, whereas
the new financial technology players, or
FinTechs, do so intensively.
Integrating and utilising data and
developing IoT applications require very
specific expertise. Numerous platforms,
some global, are being launched or
growing fast. Datavenue, Orange’s IoT
platform, was created with corporate
partners, including Schneider Electric,
Malakoff Médéric, SEB, and TF1. This
platform offers secure data hosting to
its customers, opens its application
program interfaces (APIs), and provides
toolboxes (for data flow management, data
anonymisation and utilisation, invoicing,
and so on) to developers, thus becoming
a service engine. Datavenue is also being
increasingly integrated into corporate
processes and information systems.
In the same manner, a significant number
of start-ups (like Always Prepped) as well as
incumbent firms (such as Equifax, Acxiom,
and Experian) are developing their data
collection and aggregation activities,
combining the sale of data and software.
Still others are positioning themselves on
“analysis as a service”. This is true for Granify,
Mineful, and Retention Science.
Today, companies cannot get around
the need to collect and utilise data and
develop applications. Is this part of their
core business? Do these skills need to
be developed in-house or can they be
outsourced? Our vision is that data analysis
creates more value when it remains very
close to the core business. Value will migrate
toward companies that are able to develop
powerful analysis tools by industry, or even
for specific niches. However, this transfer
poses an acute skill challenge. By 2020, the
USA will be short of about 1.3 MM experts
known as data scientists.

IOT IS ACCELERATING
THE DEVELOPMENT
OF SERVICES
IMPACT 3

Data per se is of little value but can be used
in many ways to:
•• Improve performance and reduce costs
•• Raise service levels or develop
new services
•• Reinforce customer relationships.
Industry has already started to move
toward services, and IoT is accelerating this
phenomenon dramatically.
IOT IMPROVES
OPERATIONAL
EFFICIENCY, WHICH
HELPS COMPANIES
DIFFERENTIATE
IoT is a source of productivity gains and
operational performance for companies.
In the industrial sphere, IoT enables the
emergence of Industry 4.0. These cyber-
physical systems connect objects and
allow them to interact without human
intervention. They may be designed, for
example, to optimise utilities or allow
autonomous movement. With the help of
a new generation of software and robots,
such as the Kiva Systems robotic assistants,
vehicle production lines can be optimised,
reducing the time required to produce
a personalised car by 40% and energy
consumption by 10%.
For retail, IoT is a great tool to optimise
storage and shipping. Amazon, whose
business depends on a powerful and
reliable supply chain, uses more than
15,000 smart Kiva Systems robots to
make the picking process faster and more
efficient. These robots, connected to
the central ordering system and able to
navigate through the warehouse with RFID
codes, reduce picking costs by 20% to 40%.
Amazon is thus estimated to save $500 to
$900 MM annually.
In logistics, IoT creates new fleet management
solutions. Masternaut services, for example,
give customers real-time visibility on
their fleet (position, productivity, vehicle
usage, or geolocation) and goods shipped
(compartment temperature). These solutions
help Masternaut customers optimise their
costs and cut their fuel bill by 25%.

In water and electricity, IoT solutions to track
and manage infrastructures remotely help
suppliers such as Veolia and Thames Water
save millions and more effectively ensure the
quality of the resources they manage. For
example, the start-up Redbird uses drones
to assess the state of infrastructures in real
time and identify anomalies that could
cause future incidents. Redbird’s customers,
such as GDF Suez, can use these services
to arrange preventative maintenance and
reduce the cost of technical interventions.
Concentrating exclusively on performance
gains and cost cutting is nevertheless
too simplistic; IoT is above all a source of
innovation, a new way of thinking about a
business, an opportunity to be different and
get a jump on the competition. IoT is also
the only option that can eliminate the risk
of disintermediation.
IOT SUPPORTS SIX
SERVICE PATTERNS
These six patterns, described below, force
existing players to migrate from their initial
positions (see Exhibit 11).
REINFORCE THE VALUE
OF EXISTING PRODUCTS
Offering customers a better experience than
competitors do is the objective of companies
like Bouygues, SEB, Babolat, and Terraillon.
These firms are already integrating IoT
technologies into their products. For instance,
in addition to providing tennis rackets to
Rafael Nadal and the best tennis players in
the world, Babolat equips its rackets with
sensors that allow players to analyse their
game and improve their technique. Terraillon
uses its connected scales as a platform to offer
online fitness coaching services and support
customers in their efforts to lead more active
lives. Although still quite new, this type of
product value reinforcement stands a good
chance of quickly becoming the norm.
Exhibit 11: Six service patterns accelerated by IoT and data
Terraillon SEB
Bouygues Babolat
REINFORCED
PRODUCT VALUE
Schneider Biotronik
GE Philips
ThyssenKrupp Orange
John Hancock Allianz
AutoGrid OPower
OnFarm Wink
DriveNow Smoove
Whirlpool Keolis
IFTTT
SERVICE WITH NO OBJECT
PRODUCT TO SERVICE
PRODUCT AND SERVICE AS A
SERVICE (USAGE, MULTIOBJECT)
NEW SERVICES
INFINITELY
PERSONALISABLE SERVICE
• Drives players to move from their initial positions
• Performance becomes dependent on system players
• Reinforced service “motorisation”, B2B
Source Oliver Wyman

OFFER CUSTOMERS
INNOVATIVE SERVICES
Whether it is a matter of going further and
improving existing services or proposing
new services, IoT expands the portfolio
that equipment insurers, retailers, and
manufacturers offer to their customers. In
construction insurance, putting sensors
into concrete has driven the development
of novel solutions. Issues related to the
malfunctioning of connected objects, and,
in particular, civil liability, offer considerable
potential for new services. IoT will thus
enable the development of new support
services by insurers or telecom operators.
The increased need for cyber-security will
generate the development of adapted
services. Due to their control of connected
home hubs, telecom operators will be in
a good position to expand their services
beyond connectivity. Orange’s Homelive and
Canadian Rogers’ Smart Home Monitoring
are integrated security, comfort, and home
automation solutions that allow people
to control their alarms, doors, and lights
remotely. Such services will form an integral
part of the connected home offering of
tomorrow’s operators, which will manage
the customer experience inside the home
and develop more engaging relationships
with customers, creating many additional
service opportunities.
MOVE FROM A PRODUCT-
CENTRIC OFFERING TO
SERVICES AND SOLUTIONS
In industry, for example, equipment
manufacturers, such as ThyssenKrupp,
propose predictive maintenance services to
their customers by collecting and analysing
data. These services – which complement
the traditional “physical” product (elevators
in this case) – make it possible to reduce
operational risks (with up to 70% fewer
technical incidents) and introduce more
predictability into operational planning.
EXPAND THE “PRODUCT-AS-
A-SERVICE” (PAAS) CONCEPT
The ability to collect product usage data
makes it possible to let customers pay for
products according to usage, rather than
purchasing them outright.
We are at the dawn of a zero marginal cost
economy where only the use of the product
is relevant, rather than acquisition and
ownership. Equipment manufacturers,
in particular those making household
appliances, are already thinking about
introducing usage-based pricing. IoT is
accelerating the move toward a world
where private individuals pay for their
washing machine by the load, and airline
companies pay for their engines according
to the number of flights or miles travelled.
And usage is becoming increasingly
hybrid. For example, it is no longer the
car that is insured but the use of a means
of transportation.
INTRODUCE
GENERIC SERVICES
The proliferation of IoT communication
standards creates interoperability issues.
For example, movement detectors of one
brand may not be able to communicate
with the alarms of another. As a result,
new generic – or objectless – services are
emerging, including platforms such as
Wink, which helps customers make their
homes fully connected and interactive.

OFFER INFINITELY
PERSONALISABLE SERVICES
The IFTTT (If This Then That) service goes
even further by enabling the creation of
action and reaction pairs, opening the door
to hundreds of applications. For instance, as
soon as your Nest Protect detector signals
a high carbon monoxide level, an Android
warning is sent to you and your neighbours
are notified by SMS.
In sum, IoT primarily paves the way to
accelerate the transition from product to
service, and it creates new opportunities
for global companies such as GE, Schneider
Electric, and Philips.
IOT STIMULATES THE
TRANSITION FROM
PRODUCT TO SERVICE
In industry, some companies are
transforming their initial business model. GE,
for example, is expanding its service model
well beyond the manufacture and repair of
aircraft engines. It collects and utilises data
concerning the operation of its engines to
establish increasingly powerful predictive
maintenance plans. GE is also developing
fleet management and operational tracking
services for Airbus and airlines themselves.
Specifically, with each flight, 100 sensors
per engine generate 500 gigabytes of data
to analyse. As a result, Alitalia reduced its
fuel consumption by 1.5% while AirAsia,
by augmenting its fleet usage, generated
annual savings of more than $10 MM.
The same applies to the energy sector.
Schneider Electric has become a supplier
of building objects but is also increasingly
a maintenance and facility management
player. Data gathered from these objects
and fed back to an IoT platform will enable
the significant development of services.
The Schneider Electric Andover Continuum
solution helps to reduce average building
energy costs by 30% using the smart
EcoStruxure system, which controls heating,
ventilation, air-conditioning, lighting, IT
services, and security (access, cameras, and
alarms). In this way, Schneider Electric is
employing new IoT technologies to expand
its portfolio of services and capture value
from facility management companies.
Although IoT represents a real threat
for insurers, it also creates formidable
opportunities for those that manage to
rethink their value proposition completely.
IoT makes it easier not only to segment
risk in detail and identify fraud but also
to reinvent the service model. Examples
are rife, ranging from the development
of prevention systems to automatically
triggered emergency and assistance
services, not to mention the installation
and monitoring of supervision cockpits.
In the construction industry, IoT allows
equipment manufacturers to become
service providers. For example, the elevator
manufacturer ThyssenKrupp Elevators
(TKE) is installing hundreds of sensors in
its products to track indicators such as
engine temperature, speed, friction, and
braking. Using the collected data, TKE can
predict incidents before they happen, plan

maintenance to reduce downtime, make
repairs faster (the technicians are equipped
with analysis systems to quickly identify
the cause of incidents), and optimise the
operation of its elevators. In short, data
makes it possible to integrate services into
facility management.
The same is true for utilities. Industrial
gas, for example, could move from selling
products to providing services with IoT.
One global industrial firm is offering a
medical gas distribution solution supported
by sensors and a remote IoT SIGFOX
communication system. This solution
involves providing not just the product
(industrial gas in this case) but also quality
control, remote monitoring, and support
on critical situations such as alarms,
emergencies, and fluid supply failures.
In the household appliance sector, SEB is
developing connected products that perfectly
embody industry’s migration to services.
For example, its smart multi-cooker Cookeo
Connect can be controlled by Bluetooth
from the customer’s tablet or smartphone.
The Cookeo app can automatically add the
ingredients for a selected recipe to the user’s
electronic grocery list and offer advice on how
to prepare the dish. Rather than being a mere
cooking utensil, the multi-cooker has become
a residential cooking services platform.
From aeronautical products to gas turbines,
IoT is transforming the spare parts business
in the industrial equipment sector. Siemens
is becoming a technological partner rather
than a supplier, a service provider rather than
a simple product manufacturer.
With the continuous drop in 3D printing
costs and real-time data feedback from
connected objects, spare parts no longer
have to be produced in a central hub and
then delivered to the customer; they can
now be printed on demand, where they are
needed. A manufacturer such as Siemens
is now able to deliver spare parts to its
customers ten times faster than before.
Media excitement around IoT emphasises
objects particularly for retail consumers.
However, by 2020, IoT equipment for
industries, companies, and buildings will
grow more quickly than for the mass market.
Professional IoT is expected to represent at
least 40% of connected objects.
In terms of value, industry will also represent
an essential share. From operational
optimisation that cuts costs and improves
responsiveness to innovative service
offerings that differentiate a business, IoT
represents a very attractive opportunity.
According to Cisco, 36% of the total value
added by IoT in 2020 will come from purely
B2B applications through better asset
management and usage, and optimised
supply chain and logistics operations.
The imminent service revolution will be
enabled by the collection and aggregation of
data, so missing this first step will make the
transition to services much more difficult.

IoT is revolutionary in another domain – the
customer relationship. The connection
of objects can allow players, upstream in
the value chain or from other sectors, to
capture this relationship. It can also help
historical players to reinforce the quality
of their customer service. Indeed, IoT
will permit a substantial increase in the
frequency, intensity, and particularly the
relevance of interactions with customers and
consumers. We have identified six disruptive
trends, described below, concerning these
relationships (see Exhibit 12).
NEW BALANCE
IN CUSTOMER
RELATIONSHIPS
IMPACT 4

IOT REINFORCES
THE CUSTOMER
RELATIONSHIP
IoT makes it possible to create new contact
points and opportunities to interact with
customers, and in turn reinforces the
relationship with them.
Take, for example, beacons: their large-scale
deployment in sales outlets and throughout
cities is set to be an incredible vector of
transformation for retail. Already installed
at Carrefour, Macy’s, Mahana, Tesco, and
Virgin Atlantic, the Apple iBeacon is an
indoor geolocation system using Bluetooth
Low Energy (BLE) technology that can
detect receptive terminals and send signals
to them. This new category of transmitters
revolutionises in-store experience while
making a whole range of new services
available to customers with compatible
applications. From geolocation in stores
to payment at the cash register, including
available product promotions, the iBeacon
offers a more fluid and intuitive experience.
For retailers, these beacons add value to
the point of sale by making it interactive.
Passers-by are notified of available discounts
to attract their attention. If shoppers
agree to be geolocalised in the store, their
itinerary can be analysed in detail in order to
model customer types according to profile.
Distribution thus reinforces the relationship
with consumers in several ways.
IOT REINFORCES
KNOWLEDGE OF
THE CUSTOMER
Manufacturers of consumer products have
long been frustrated by their lack of direct
knowledge of end customers. Retailers alone
had a direct relationship with consumers
at the time of purchase, relegating
the manufacturer to a back-office role.
Consumer service initiatives, surveys, and
other clubs were simply palliatives.
We are at the dawn of a partial
reintermediation, as integrated RFID tags,
or the connection of products, makes it
possible for manufacturers to collect hitherto
inaccessible information. Information on
store-by-store sales flows and inventory
levels is now available. Manufacturers can
therefore adapt their logistics, promotions,
and advertising by location and in real time,
depending on sales and inventory levels.
Exhibit 12: Six disruptions that change the relationship and deepen knowledge of
the customer
REINFORCED
CUSTOMER RELATIONSHIP
PARTIAL DISINTERMEDIATION INTERMEDIATION
PARTIAL
REINTERMEDIATION
B2B TO B2C
TRANSACTIONAL
TO INTERPERSONAL
Home equipment gaining
ground versus distributors
Insurance sold
by manufacturers
Industrial gas
to home healthcare
Mahana Adidas Tesco
Carrefour VirginAtlantic
L’Oreal Danone
Procter& Gamble
Evian Philips GE Jaguar
Michelin Allianz
Source Oliver Wyman

We can also imagine future connections
between products and customers, enabling
the establishment of detailed links between
specific customers and usages or buying
behaviours. Whereas retailers currently
use very little sales slip information,
manufacturers are building a knowledge
base to develop a better understanding
of consumers, or even establish a direct
relationship with them.
Companies like Danone, Evian, L’Oréal,
and P&G have started to take this decisive
approach which, over time, should
change the balance of power between
manufacturers and retailers.
FROM TRANSACTION-
BASED TO
RELATIONSHIP-BASED
The frequency of contact with customers will
increase. Jaguar Land Rover, for example, is
trying to do this by becoming a partner to
customers throughout the life cycle of the
car, in order to monetise the relationship
after the initial transaction (see Exhibit 13).
The connected car enables Jaguar to
establish a direct relationship with
customers. The automaker provides them
with essential data in real time and creates
opportunities to contact them. For example,
with remote verification of the state of the
tyres and battery, Jaguar can anticipate
technical incidents and notify customers
before a problem occurs. A significant
amount of data can also be collected to
understand precisely how customers use
their cars. Using this data, Jaguar can
suggest the models that are most suited to
individual customers for their next purchase.
B2B TO B2B2C
AND PARTIAL
REINTERMEDIATION
E-commerce has long fostered the
reinforcement of direct customer
relationships by upstream value
chain players, and IoT will drive these
opportunities even further. Without
becoming fully B2C, a certain number of
business models will continue to operate as
B2B2C but the balance of power will shift
among value chain players.
Take a household appliance manufacturer, for
example. Its connected washing machines
or refrigerators gather data that enables it
to perform remote maintenance and update
product performance for a given usage.
The potential to migrate further toward B2C
and services is obvious. It isn’t essential to
go through a pure B2C phase because the
manufacturer doesn’t have to take charge of
salesanddistribution.Ontheotherhand,itcan

capturevalueintermsofcustomersatisfaction
and loyalty, and will also be in a position to
challenge retailers on aftersales service.
B2B TO B2C
Other players could modify their model
while moving more radically toward B2C. We
have already cited the case of IBM, whose
power to analyse combined data opens up
opportunities to enter the consumer market.
Other industries could make the same sort of
move.AirLiquideHealthcareisalreadymoving
into home health support. All forms of home
assistance and care, supported by IoT, could
attract companies from the industrial sector
to service activities for the end customer.
Likewise, public works and construction
playerscouldtransformtheirbusinessmodels.
Could a company like Colas, which integrates
sensors into roads and sidewalks, develop
other B2B or B2C businesses using the data
collected? Will the latter make it possible to
supplement data collected by JCDecaux, for
example, through its urban display panels?
Exhibit 13: Jaguar as customer partner throughout the life of the car
Last parklocation of vehicle Direction to your vehicle Warning!
The battery is low. Please
start the engine or contact
your dealer for more
information
Slide to unlock
ESTABLISH A DIRECT
RELATIONSHIP WITH
THE CUSTOMER
PROVIDE KEY DATA
IN REAL TIME
CREATE NEW CUSTOMER
CONTACT OPPORTUNITIES
Track the customer throughout the vehicle life cycle to
monetise the relationship after the initial transaction
JLR’s customer relationship
management philosophy
Source JLR

Exhibit 14: Potential IoT value and risk by vertical
INDUSTRIAL
INTERNET
SUPPLYCHAIN
INSURANCE
CONNECTED
BUILDING
TELECOMAND
TECHNOLOGY
RETAIL
AIRTRANSPORT
SMARTUTILITIES
HEALTH
Productivity and costs
Differentiated
customer service
Innovative services
Revenues
Risk of disruption
Source Oliver Wyman
B2C TO B2B
The reintermediation of some players is
driving the disintermediation of others, but
one is not necessarily better than the other.
For example, an insurer losing the sale of a
policy to an end customer and becoming
the supplier to a car manufacturer is not
necessarily losing out if its volumes are large
and the market is consolidated around two
or three insurers.
A company that collects data to develop ad
hoc services is well on its way to reinforcing
its customer relationships. A player who
misses out on these changes, on the other
hand, is likely to be disintermediated.
But is this a real problem? According to
our research, models will be increasingly
hybrid. Companies will be in direct contact
with some customers while also being on
the sidelines with others. This will require
additional agility compared to current
models. (See Exhibit 14.)
Limited
Limited
Average
Average
High
Risk of disruption/risks
High
Potential value

APPROACH IOT
AS A BLANK
SLATE, STARTING
WITH SERVICE
It is highly tempting to start with available
data to derive an IoT strategy. We believe,
however, that by starting with their existing
assets, companies may miss out on the most
innovative business models.
The scope of exploitable data will become
infinite. It will be easy to get lost while trying
to determine what can be exploited. Starting
again with a blank slate and customer needs,
thinking about usage ever more deeply, in
terms of service: this is the approach most
suited to designing innovative models.
Withings initially built its offering by thinking
as much about personal health and well-
being as about data and collection tools.
Such approaches, which derive their power
from a detailed understanding of what users
value, mean plunging into different verticals
or spheres. They also increasingly require the
ability to navigate laterally across verticals.
DERIVE A DATA
AGGREGATION
STRATEGY FROM
THIS ANALYSIS
Data will not always be free, and powerful
ecosystems capable of capturing them
will come to the fore. It is thus important
to establish strategies to collect solid data
in a manner that respects customers.
Depending on its specific position in a
domestic market or its size on a global level,
each player must decide if it wants to be an
integrator of different systems or a mere
participant in an ecosystem.
Philips, for example, has adopted a position
of compatibility with major ecosystems. The
company works in partnership with major
players that complement its lighting offer,
such as ABB.
Any data strategy must be based on trust
and security. In a connected economy,
the pact of trust between the company
and its customers will be key. Establishing
transparent opt-in agreements is essential,
just like IoT end-to-end security to avoid
the remote hacking of connected objects
(for example, at home or in the car) and the
plundering of data.
HOW CAN YOU MAKE
INROADS INTO SUCH
A VAST SUBJECT?

DIFFERENTIATE
YOURSELF BY
TRANSFORMING
YOUR OPERATIONAL
MODEL
To succeed, it is essential to adapt your
operational model and differentiate yourself,
which involves large-scale transformation
of practices and the value proposition. A
number of disruption points are emerging.
We believe that only open-system models
will be successful. Designing products with
non-proprietary protocols is imperative.
Virtualisation and increasing disconnection
of the physical product (or hardware) and
software must be integrated far upstream.
Products will have longer life cycles than
software. Products will therefore have to be
more evolutionary and reparable through
online updates, meaning that cars or
electricity meters must integrate this factor
right from the design stage.
Service must be thought out before the
product and must cover multiple products
and models. The infinite potential of
concepts such as IFTTT must be integrated
into design as much as possible.
Some of the examples presented at the
beginning of this article may still seem
remote, but concrete, short-term initiatives
can already generate significant value.
We have observed many usages with
attractive return on investment (ROI).
By equipping its refrigerated grocery aisles
with sensors that respond immediately to
potential breakdowns (to avoid the loss
of food products), one supermarket chain
amortised its IoT investment in a matter
of months.
Pilot testing of “first viable products” is
essential with IoT. This makes it possible
to discover potential usages and gradually
establish corresponding business models
within ecosystems.
BUILD AN OPEN
ECOSYSTEM
(MARKETPLACES,
ALLIANCES,
START-UPS)
Succeeding in IoT will require establishing
cross-vertical collaboration in different
spheres. No company, no matter how large,
can invest alone in tomorrow’s applications.
The first impact will be the development
of marketplaces where various players
contribute to building the right solution.
Telecom operators in particular are in a good
position because they can be the architects
of ecosystems, combining verticals and
the technological building blocks that they
provide and integrate.

Some players think they can develop an
IoT strategy while remaining closed. They
believe that they will be able to protect their
business of installing automated home
appliances by creating a closed ecosystem in
the home. We think that these attempts are
highly likely to fail. On the other hand, open
strategies are likely to succeed if they offer
exemplary customer experience and service
as well as consistency.
Major European corporations do not appear
to be very advanced in IoT. Nonetheless,
there is a great proliferation of ideas and
start-ups that need funding, especially for
the second or third round of financing. To
us, it seems difficult today to differentiate
through IoT without an established
and ambitious investment strategy or
partnerships with start-ups.
ADOPT A EUROPEAN
APPROACH BASED ON
COMMONSTANDARDS
When a manufacturer develops a solution
for the United States or China, an immense
market immediately opens up. This is less
true for Europe. The rationalisation of
European industrial plans, reduced from 34
to 10, including one focused on connected
objects, is a very good sign.
However, this is not enough. Aligning
standards between different countries
in Europe would be a decisive driver to
accelerate the emergence of European
IoT leaders. Such alignment is also critical
to maintain innovation in Europe, as well
as to ensure European data security,
independence, and control.
In particular, a European response would
support the emergence of ecosystems driven
by large industry or service players, and
would counterbalance the establishment of
dominant de facto platforms.
Building European cloud and IoT data
platforms as credible alternatives to global
platforms therefore seems desirable in more
ways than one.
Only open-system
models will
be successful

IOT
SCENARIOS
IN NINE
INDUSTRIES
The Internet of Things affects all industries, but their
maturity level in this transformation depends on their
particular characteristics. This is why we chose to carry
out a more in-depth study of nine industries that appear
most affected by this phenomenon: insurance, health,
air travel, retail, industry, smart buildings, infrastructure
and smart grids, telecommunications, and the supply
chain. For each industry studied, we analyse the impacts
of IoT and the opportunities and threats for incumbent
players, and we end by anticipating strategic scenarios
and new IoT business models.

INSURANCE
A NEW DIRECTION
FOR INSURANCE
DAVID GIBLAS
THIERRY MENNESSON
THE INTERNET OF THINGSIOT SCENARIOS IN NINE INDUSTRIES

THE IMPACT OF IOT
ON INSURERS
Insurance is an industry heavily dependent
upon understanding and analysing risk,
through gathering and observing data
over time. Until now, this involved finding
correlations between the frequency and
severity of insurance claims on the one hand
and data describing insurable assets on the
other. These analyses were then used to
develop models to select and price risks and
manage risk portfolios. This information,
known as cold data, primarily entailed a static
description of the object of insurable risk
(such as a car) and the environment likely to
influence that risk (including driver profile and
car usage type).
IoT deeply affects the insurance business by
providing access to new types of dynamic
information, known as hot data. This data
relates to the object of risk, its usage level,
and user behaviour. For many branches of
insurance where risk is directly correlated to
the exposure and behaviour of policy-holders,
this hot data will deeply transform risk
selection, pricing, and monitoring models.
Personal lines insurance (automotive, home,
and health) is directly concerned by this
correlation, with motor insurance being the
most advanced in applying IoT-based models
(see Exhibit 1). Indeed, telematics initiatives
were carried out for this purpose as early as
the 2000s.
Insurers have now made great advances
in pay-how-you-drive offerings based
on dongles plugged into the dashboard,
smartphones, telematics devices (‘black
boxes’), or a combination of these
technologies. Some have already launched
an equivalent health offering, such as John
Hancock’s pay-how-you-behave policy
(Manulife). Others are thinking about an
application for home insurance, namely pay-
how-you-live.
We believe that commercial insurance will
also be greatly impacted by the emergence
of IoT, even if the implications are greater
for risk prevention and selection than for
pricing models. Some industries are natural
candidates for rapid transformation, such as
agricultural insurance, building insurance,
and small and medium-sized businesses in
some market segments.
In addition to data, IoT is also revolutionising
the customer experience. Interactions were
until now few and far between (claims being
made every four to five years on average
in some lines of business) and often with
negative perceptions because they were
connected to claims management. IoT
makes it possible for insurers to move from
a low-frequency transaction-based model to
a much more interactive model built on new
ways to provide prevention, advice, coaching
services and, of course, rapid assistance
and support. The transition from “insurer as
payer” to “insurer as protector” is therefore a
fundamental change in positioning, allowing
insurers to play their role fully in protecting
customers and, in the process, to generate
new potential sources of revenue, reduce
claims, reinforce customer relationships, and
improve their image.
Key takeaways. IoT is creating two major
shifts that will have an impact on the
economic models of insurers. It is now
possible to exploit new information – known
as hot data – relating to policy-holder usage
and behaviour; Insurance will move toward
more prevention and monitoring in real
time, for the well-being and protection of
customers from day to day.
THE INTERNET OF THINGSIOT SCENARIOS IN NINE INDUSTRIES Insurance

THREATS
TO INSURERS
IoT offers real opportunities to insurers but
also presents major new threats, which must
be anticipated and managed.
Upstream of the insurance value chain, the
need to possess huge volumes of data was the
principal entry barrier until now. Today, this
barrier is fast disintegrating under pressure
from new players like GAFA (Google, Apple,
Facebook, Amazon). These players are able
on the one hand to collect increasingly
refined data and on the other to generate
new relevant data and ultimately extract the
intelligence required to feed their business
models in real time. An additional threat to
insurers is posed by the emergence of a new
category of players, the aggregators, which
consolidate data from multiple ecosystems to
propose new services.
Further down the value chain, in the domain
of distribution as well as the customer
relationship, there is a battle to gain access
to the customer. A wide variety of threats are
coming from pure players (for example, GAFA
and Instech), data concentrators, new big
data players (such as Big Telematics, Cobra,
and SAS), telecommunications operators (like
Orange), “big tech” (IBM for instance), service
operators and manufacturers (including car
manufacturers and energy providers), IoT
equipment manufacturers, and so on.
The danger of disintermediation is very
real for insurers. IoT incontestably flattens
the value chain, as evoked in Thomas
Exhibit 1: The impact of IOT on personal lines insurance
Development of
smart end-to-end
protection
More accurate underwriting,
risk mitigation, risk
management, and
claims services
New pricing models:
pico-segmentation,
usage-based insurance (UBI)
pricing models
New insurance/non
insurance services:
prevention, coaching,
monitoring, etc.
New customer experience,
better customer
engagement, and
improved client satisfaction
SMART CAR
INSURANCE SERVICES
SMART HEALTH
INSURANCE SERVICES
AXA Progressive Aviva
Coverbox Allianz Generali
SMART HOME
INSURANCE SERVICES
BNPParibas StateFarm
AmericanFamily
Insurance
Allianz
Cigna BP AIA
Manulife Oscar
Source ABI Research, Oliver Wyman analysis
IoT could revolutionise how property
and casualty (P&C) insurance is
priced, distributed, and serviced;
it could shift the business model
toward service-driven ecosystems

L. Friedman’s best seller, The world is flat.
Hyper-connectivity and the flow of data
enable players from different industries to
expand into the insurance market. Different
players may have different strategies but
they share the ability to generate, collect, or
consolidate data and, based on the extracted
intelligence, to develop customised, on-
demand service propositions. They are
positioning themselves as unavoidable
access points to customers. Some players
appear more likely than others to win this
battle. The legitimacy and ability to cope
with these changes is becoming a burning
issue for insurers in each market segment.
We are also seeing a demoduralisation
phenomenon led by specialised players
who hack the customer relationship on a
very specific activity through a low-price
approach combined with IoT. Automotive
assistance in the US is a good illustration of
this phenomenon. Newcomers like Urgent.
ly (partners of Mapquest and AT&T) are
using service provider network management
capacity combined with technology firmly
woven into the customer relationship to
position themselves in the automotive
assistance market and extract it from the
traditional insurance value chain. The
mandatory installation of eCall into all cars
starting in 2018 will very probably amplify
this phenomenon in Europe.
The home assistance market is also
attractive, with many start-ups positioning
themselves as service aggregators
(HomeAdvisor.com, Buildzoom.com, and
Pro.com for example) or Amazon and Google
deploying new home services offerings.
The “uberisation” of assistance, which we
translate as the emergence of sophisticated
relational marketplaces, will spread
gradually to all domains; we wouldn’t be
surprised if Uber itself decided to extend its
know-how into the assistance sector.
But the new rules of the game are even more
threatening to traditional insurers. Indeed,
some players might even be tempted to
extend their incursion into the insurance value
chain as soon as they have perfect control
of data and the customer relationship (see
Exhibit 2). Players like Google will very soon
be able to calculate the cost of risk precisely,
and so could set up a reverse auction system
based on the estimated price for a given pool
of risk. In this scenario, insurers would lose
control of pricing and be relegated to the low-
value- added role of risk holder.
The question remains open on whether these
players–whoseabilityisnowproven–actually
want to become fully fledged insurers for
certain types of risk. The decision to continue
along this path depends essentially on their
interest in positioning themselves in a highly
regulated business made less attractive by the
rising cost of capital.
The accepted objective of using data to
acquire new knowledge is to make our
lives easier, safer, and less exposed to risk.
According to our estimates, we can expect a
big reduction in losses and consequently a
shrinking of premiums by more than 20% for
specific business lines. This will drive insurers
to find new ways to generate revenues to
compensate for the lost turnover. We see
three main revenue-generation opportunities:
the rising need to insure cyber-risk and new
IoT intelligence; diversification of insurance
to provide customers with prevention and
coaching services; and first-mover advantage,
in which a new IoT-based selection and
pricing model is used to attract the most
profitable risks in the market and leave the
rest to the competition.
In the latter cases, the adverse-selection
phenomenon could be fully tapped by
adopting an IoT business model. There will
be big winners but also some big losers.

Customer hyper-segmentation and risk
pooling challenges are now burning topics
of discussion, particularly concerning the
impact of pay-how-you-drive offers. IoT
will make it possible to refine knowledge
of usage- and behaviour-related risks, and
sanction of higher-risk profiles. We believe
that pricing will be increasingly segmented,
probably starting with the populations that
are least well segmented today due to the
lack of basic behavioural information (on
young drivers for instance). Segmentation
will then be refined in other areas as the
correlation between behavioural, usage, and
claims data is better understood.
Some insurers are already applying micro-
segmentation of risk to particular types of
insurance, and IoT is opening the way with
nano- or even pico-segmentation. We are
also convinced that pricing models will
fit in nicely with highly sophisticated risk
selection and portfolio management models.
The trend is thus toward the de-averaging
of pricing, without knowing at this stage
whether this will ultimately lead to purely
individualised pricing or even if the public
authorities will allow it.
The new offerings will encourage customers
to reduce their exposure to risk by adopting
safer and more responsible behaviours.
Ultimately, this would be in the best interest
of customers and insurers alike.
However, this principle cannot be applied
uniformly in every domain. In healthcare, for
example, this system would strongly penalise
people who suffer from unfavourable genetic
predispositions and who cannot reduce their
exposure to risk by simply changing their
behaviour. We consequently recommend
extreme caution and discernment in applying
such models to ensure that populations
Exhibit 2: Threats are coming from all sides
IN THE NEW IOT AND DIGITAL WORLD, MANY ACTORS ARE WELL PLACED
TO CAPTURE THE CLIENT RELATIONSHIP
INSURERS
SMART PROTECTION
COMPANIES
PRODUCING/
SELLING THE
INSURED ASSET
IOT
MANUFACTURERS
COMPANIES
SERVICING
THE ASSET
COMPANIES
PROVIDING
TELCO & IT SERVICES
COMPANIES
PROVIDING
INFO & ACCESS
COMPANIES
WHO FINANCE
THE ASSET
• How can client access and relationships be maintained
in this new ecosystem?
• Which actors are the best placed and have the credibility
to capture the insurance relationship?
• Can we keep/do we have to keep the customer
relationship?
• What are the best distribution channels to sell smart
protection offerings?
• Which actors would be the best possible distribution
partners for insurers?
HSBC Nutmeg
LendingClub
TomTom Nest
Jawbone
BritishGas Véolia
Jones LangLasalle
Cisco Orange
SamsungIBM
Alibaba Amazon Apple
Tesco Goggle
Facebook
Siemens Bouygues
Mercedes
Source Oliver Wyman

known or considered to be particularly at
risk can continue to find insurance at an
affordable cost. The public authorities will
have a major role to play in managing the
application of these new models.
Key takeaways. Insurers face many
threats to the value chain both upstream
(including data collection and usage) and
downstream (such as distribution and
customer relationships).
We are already witnessing the emergence
of players in many industries attempting to
adapt or divert the customer experience in
their favour: the latter are sometimes termed
customer experience (CEX) specialists or
growth hackers. Some of these players
may even be tempted to become fully
fledged insurers.
Insurers must imagine new sources of
revenue to compensate for the reduction
in insurable assets. The adverse selection
phenomenon will considerably boost the
premium to the first movers who manage
to industrialise an IoT business model
suited to insurance. The public authorities
will have a major role to play in regulating
the application of these new models and
ensuring that some population segments do
not become uninsurable.
NEW IOT BUSINESS
MODELS AND
STRATEGICSCENARIOS
Insurers must thoroughly rethink their
value proposition to take account of the
unprecedented disruption of the industry
that IoT will cause. The value proposition,
which covers not only products and services
but also the customer experience, must be
fundamentally changed to migrate to more
personalised, on-demand service while
improving the core business of the insurer.
In our view, the IoT value proposition for
insurers will have seven dimensions (see
Exhibit 3):
1. Sophisticated risk segmentation,
selection, and management
2. Improved fraud identification and
claims management
3. Establishment of automatic assistance
and emergency services, automated
claims notification, and automated
claims management
4. Development of new pricing models
based on usage and behaviour
5. Introduction of new risk prevention,
protection, and management services
6. Real-time risk tracking and management
7. Redefinition of the customer experience
We believe that implementing these new
proposals must be both segmented vertically
(retail, car, home, health insurance, and
so on) and progressive. This will make it
possible to manage the greater complexity of
multiple factors, such as the need to process
new data not immediately exploitable
for the purpose of understanding claims,
acquire new skills, transform the value
chain, create new partnerships, and stabilise
applicable technologies.
These new IoT-based propositions will force
insurers to address the key issues of their
data access strategy and their distribution
and customer relationship strategy
DATA ACCESS STRATEGY
Many initiatives launched today by insurers
depend largely on a collaborative partnership
with IoT suppliers: telematics for the car,
thermostats and other sensors for the home,
fitnessbraceletsforhealth,tonameonlyafew.

Our perception is that these initiatives
are principally designed as vehicles for
communication or “buzz”, or to test new
customer services and learn to use new data,
rather than as a real medium-term strategy.
Many questions remain concerning the
target of the IoT data collection and usage
environment, and there are a number of
potential operating models. These include a
single open platform by ecosystem, several
proprietary platforms by ecosystem, a
platform covering multiple ecosystems, open
data platforms, and hybrid models.
We are convinced that insurers cannot win
the data battle alone, due to the unbalanced
distribution of power. They will thus have to
cooperate with other players across, within,
or by combining vertical ecosystems (car,
home, health, and so on) and cannot afford
to ignore the need to monitor ongoing data
initiatives and conduct multiple pilot tests
to pre-empt the best possible partnerships
depending on the estimated value of the data.
Exhibit 3: New IoT value proposition for insurers
IMPROVE RISK CARRIER
CORE BUSINESS
OFFER IMPROVED
INSURANCE SERVICES
DEPLOY NEW
NON-INSURANCE SERVICES
INSURE THE RISK CONTROL THE RISK PREVENT THE RISK
Better fraud identification,
better assessment of the
cost of loss
Better risk assessment,
more accurate pricing
and risk monitoring
New customer experience: hassle-free, differentiation through selected delights, signature moments,
experience innovation
Rapid emergency in case of
claims, fast FNOL (First Notice
Of Loss) and claims processing,
anticipation of indemnification
New pricing models:
usage/behaviour-based pricing
Prevention and risk advisory
services, feedback and ability
to change/command
customer behaviours
Risk monitoring in real time:
auto diagnostic, (predictive)
maintenance, self monitoring,
tele coaching services, …
5. Insurance only
vs. diversification
4. Static vs. dynamic
value chain
3. Past-based vs.
predictive model
2. “Cold” vs. “hot” data
1. Few data vs. variety of data
Insurance and assistance
Static
Static models based on
past claims patterns
“Cold” data
Internal data used (customer, risk,
history, claims record, …)
+ tracking, emergency, some
location-based services
Fast reactive
+ usage based data
+ rapid adjustment
+ external static data
+ prevention, monitoring, coaching,
multiple adjacent services
Dynamic: dynamic pricing, product
configuration, instant marketing,
events-triggered services
+ behaviour data and
predictive patterns
+ “hot” data on-the-fly
+ multiple IoT data sources
Source Oliver Wyman

DISTRIBUTION
AND CUSTOMER
RELATIONSHIP
STRATEGY
Many players, such as GAFA, are betting
on using data to capture the customer
relationship. Their objective is not to sell raw
data or even the corresponding patterns
but to position themselves as unavoidable
players in the customer relationship by
incorporating multiple services using the
intelligence extracted from this data. Faced
with this new type of competition, insurers
must define their positioning precisely.
We expect the polarisation of distribution
and customer access models (see
Exhibit 4), with the emergence of two
major archetypes:
Archetype 1. An “insurance inside”
model distributed by other upstream
or downstream players in the insurable
matter value chain. This insurance could
be subscribed to when purchasing an
item requiring insurance (for example,
car manufacturers could sell a package of
services including IoT-based auto insurance)
or paid over time according to the usage
of the insured good or service (energy
providers and telecoms providers are
well placed to distribute IoT-based home
insurance). This archetype may go as far as
transferring (some) retail insurance to cover
the civil liability of the manufacturers of
goods and providers of services. This is true,
for example, in the automotive industry,
where the spread of autonomous vehicles
will cause a large share of premiums to
migrate from coverage of drivers to liability
coverage of manufacturers.
Archetype 2. A “smart protection services”
model in which the insurer preserves
the customer relationship by providing a
package of services, insurance, and more.
This package would cover a whole range
of needs, from prevention to assistance,
not to mention coaching and monitoring.
This model could be established
either through partnerships (service
orchestration) or extending the value chain
(service integration).
Disintermediation incontestably puts great
pressure on producer margins, and this
will be the main problem with archetype 1.
Nevertheless, we feel that this positioning
can generate great value if insurers can
fully exploit the potential of their data and
establish wide-reaching partnerships with
distributors. These extended relationships
must be based on providing high-value-
added services around the intelligence
extracted from customer, product, and
service innovation data. They should also be
backed up by sophisticated selection and
pricing models, adapted marketing and sales
materials, effective distributor and customer
tools, and a portfolio of assistance services.
The ability of insurers to operate
internationally will also be critical in
implementing this archetype. Indeed,
it is highly likely that the shift from
business-to- customer (B2C) to business-
to-business (B2B) coverage will require
insurers to propose offerings covering all
of the countries where manufacturers or
service providers do business (for example,
automotive). This could therefore lead to
consolidation of non-life insurance players.
The main problems with archetype 2 lie
in the feasibility of execution and the
legitimacy of insurers in playing a service
hub role. Indeed, distribution and
customer experience have not been the
historical strength of insurers. In addition,
digitalisation of the insurance sector
remains immature in comparison with other
industries, even if some insurers have greatly
accelerated their digital transition.

This archetype will thus require huge efforts
from insurers to establish a customer-
oriented culture, create a seamless and
user-friendly customer experience, adopt
new fast execution practices, develop
tangible innovations, accelerate digitalisation,
reinforce the agility of the value chain, recruit
and retain new talent, and build extended
ecosystems. To accomplish this, insurers are
advised to take inspiration from best practice,
including by pure internet players, and pay
particular attention to the aforementioned
CEX specialists and growth hackers.
We believe that insurers who have an existing
assistance subsidiary are better equipped to
build archetype 2 because these structures
can help create and manage service
provider networks and provide a strong(er)
customer culture. Moreover, several large
insurance companies already use their
assistance subsidiary as a secret weapon for
diversification and pilot testing. The most
pressing questions would then involve insurer
governance and the ability to deliver rapidly.
As one famous insurance industry CEO told
us: “Assistance used to be sold with the
insurance; but in the future, we might see
insurance being sold with the assistance.”
It is crucial for insurers to apprehend the
forces at play and the changes to come in
each of their verticals. By analysing their
positioning, strengths and weaknesses,
investment capacity, and legitimacy, they
will be able to identify the most relevant
business models. The definition of these
target business models will have to start
with a detailed understanding of the end-
to-end customer experience (for example,
Exhibit 4: Polarisation of archetypes in insurance
NEW MODELS
RISK CARRIER
TRADITIONAL MODELS NEW MODELS
CLIENT ACCESS
ARCHETYPE #1
THE PURE
RISK HOLDER
THE LOW COST THE MULTI LINER ARCHETYPE #2
SMART PROTECTION
SERVICES
Model key
characteristics
• Insurer is competing
on its core “risk
carrier” business
• New players have
secured client access
and expanded into
insurance services
distribution
• Insurer is competing
on price and provides
only basic products
and services
• Insurer only targets
selected consumer
proﬁles
• Insurer provides a
wide range of tailored
insurance products
and services
• Distribution model
is a combination of
proprietary and
non-proprietary
channels
• Insurer has become
an end-to-end risk
manager
• Insurer plays the role
of a hub aggregating
insurance and
non-insurance digital
services for its
customers
(white-labelling)
Margin potential
Difficulty Low Medium Medium High
Value creation model
Services
Clients
Services
Clients
Services
Clients
Services
Clients
Source Oliver Wyman

from car insurance to integrating the need
for mobility of all kinds) and, at each step,
rethink the corresponding value proposition,
capitalise on the intelligence of current
and future data, as well as develop the best
sourcing strategy for data, services, and
technology (see Exhibit 5).
In the automotive industry, for example,
insurers may well be obliged to come up
with an “insurance inside” archetype,
given the power of auto makers. The
latter have already made great efforts to
reinforce control of their ecosystem and
erect new entry barriers (for instance, with
connected cars and autonomous cars).
Other serious players are also in the race,
such as Google and Apple. It is probable that
the “insurance inside” model, as we have
already mentioned, is just an intermediate
stage for auto makers before moving to B2B
insurance. Conversely, in home, health, and
corporate insurance, the game isn’t over yet.
Although the battle is raging in all of these
sectors, insurers can still hope to position
themselves in the customer relationship with
a smart protection services archetype, using
their assistance subsidiary as a spearhead.
Key takeaways. IoT will drive insurers to
redefine their value proposition, in terms
of offering but also customer experience,
and migrate toward more prevention-
oriented assistance services. Data access
and distribution strategies will be decisive in
executing these new IoT business models.
Two distribution archetypes will come to
the fore in the long term: insurance inside
and smart protection services. These new
business models must be defined, starting
with the end-to-end customer experience,
by rethinking the corresponding value
proposition at each stage. The ability of
insurers to form partnerships and join the
right ecosystems with a vertically segmented
approach, and capitalise on their assistance
services or offers, will be decisive.
Exhibit 5: Main challenges for insurers in the IoT race
How can we avoid losing the
crucial “hot” data battle?
How can we shift from a product-selling
to a data-driven services business model?
How can we ensure sufficient agility
and reactivity in the business model
and value chain (pricing, product
modularisation and personalisation,
marketing campaign)?
How can we retain client access or,
at least, not lose it completely?
“Hot” data collection
and intelligence extraction
New data-driven services
business model
Agile value chain and
business model
Client access
Source Oliver Wyman
Addressing these
challenges will require
insurers to shift to different
marketing strategies and
rethink the end-to-end
customer experience

HEALTH
HEALTHCARE IS POISED
FOR TECHNOLOGY-
LED TRANSFORMATION
ANDREW CHADWICK-JONES

These days, the surest sign that an industry
is about to undergo wrenching change is a
sudden influx of tech entrepreneurs backed
by venture capital investment. Travel, retail,
journalism, and media have all been the
target of their own tech attacks in recent
years. The process has created immense
value for consumers but has been brutally
hard on the companies that traditionally
dominated those sectors – at least those that
failed to respond quickly and well.
For decades, healthcare has largely been
exempt, despite serious attempts by market
leaders in financial services, consumer
technology, software, and beyond. But it
now seems this vital industry’s turn has
come at last. Over the past five years, tech
start-ups and venture capitalists (VCs)
have been targeting health and healthcare
at a rapidly accelerating pace, urged on
by regulatory reform, a crisis in costs, and
value-starved consumers. While perhaps not
highly visible (yet), the tech sector has been
quietly working on the next generation of
our healthcare market: Health Market 2.0.
Most commentators would agree that
healthcare systems are inefficient and the
product of policy decisions taken more than
a generation ago.
For example, the UK NHS’ structure is little
different from the time of its inception in 1948.
And in a time of rising consumer expectations,
the user experience of healthcare is falling
behind, particularly when compared to Uber
for personal transport, Amazon for shopping,
or Open Table for picking a restaurant and
making a reservation. In healthcare, nearly
everything is inconvenient, slow, confusing,
and opaque. It is hard to determine which
doctor to see and even harder to know if they
are following evidence-based guidelines,
taking a holistic approach to medicine, or are
priced in line with the market.
And so the tech entrepreneurs are doing
what they do best: redefining the rules and
tipping value their way, creating magnetic
new products and services that eliminate
hassles and delight consumers.
Some provide general health information
(such as Greatist or WebMD), help
consumers prepare healthy meals (Zipongo),
or even provide live, video-based personal
training sessions (Wello). Others drive
personalised engagement by aligning
consumer actions and behaviours with
incentives and rewards (Welltok), offer
primary care based on a whole new model
(Iora Health), or enable consumers to find
doctors, make appointments, and identify
low-cost opportunities (Castlight and
ZocDoc). And of course there are the apps for
smartphones and tablets, tens of thousands
of them, to count your steps, track your
blood sugar, connect you to a community
of patients with similar concerns, provide
health information, or let you compete with
your friends on who burns the most calories.
THE INTERNET OF THINGSIOT SCENARIOS IN NINE INDUSTRIES Health

Consumers have responded. WebMD
attracts 180 MM unique visitors each month
to its network of websites. Jawbone’s Up
band, one of the leaders in fitness tracking,
recently registered its trillionth step. There
are between 50,000 and 100,000 health and
fitness apps, mostly monitoring exercise
and eating, some tied to wearable sensors or
biometric devices.
According to the research firm
Research2Guidance, the top ten health
and fitness apps generate up to four million
free and 300,000 paid downloads each
day. The top-ranked, MyFitnessPal, says
it has more than 40 MM registered users.
And where there is accelerating consumer
demand, there is investment. In 2010, only
17 healthcare-focused software companies
attracted seed investments of $2 MM or
more. In 2013, the number was 89 (see
Exhibit 1).
Just as important as venture capital are the
investments that the incumbent technology
firms are plowing into health-related
projects. Google, in addition to developing
a “smart” contact lens that measures blood
glucose levels, has invested in a dozen
health start-ups through Google Ventures.
IBM recently announced it would invest
$1BN into the new Watson Group, including
$100 MM toward venture investments to
support start-ups who are building cognitive
apps through the Watson Developer Cloud.
In early 2014, Intel bought Basis, a health-
related smartwatch company, for somewhere
between $100 MM and $150 MM. WebMD
launched a new programme in its iOS app
Health Target that integrates not just activity
from a Fitbit or Jawbone UP band but also
data from health devices essential to those
with chronic diseases (such as glucometers
and wireless scales). Apple made a series
of announcements in September 2014
positioning the company to broadly expand
their consumer relationships into health.
Exhibit 1: Healthcare software and apps companies early
stage funding
50
25
75
0
100
2009 2010 2011 2012 2013
NUMBER OF ROUNDS OVER $2 MM
2009-2013
x7
Source Oliver Wyman
There are between
50,000 and 100,000 health
and fitness applications

All in all, the past two or three years have
seen an outpouring of innovation and
investment in health and healthcare that is
simply remarkable, and all the more so for its
pace – easily ten times faster than anything
healthcare has seen before.
THE FUTURE HEALTH
SYSTEM AND
THE RISE OF THE
QUANTIFIED SELF
Consumers have long tracked activities
relevant to their health, keeping diaries
and logs of exercise, calories, and the like.
But over the past few years, the “quantified
self” movement has taken the practice to
a new level, using electronic sensors to
track a variety of metrics that can then be
digitally processed, interpreted, and shared
in databases with other people’s information
(see Exhibit 2).
The popular devices created by Fitbit and
Jawbone let us track steps, activity, and
sleep. Soon though, we will also be able
to track metrics on calories consumed
and burned, blood pressure, glucose,
oxygen levels, heart rate, and cholesterol.
Consumers at last will have access to a set
of relevant numbers regarding their health,
just as they have had numbers to track
their finances.
Already 95 MM Americans are using mobile
phones for health information, according
to Manhattan Research. Most are tracking a
single health indicator, such as weight, diet,
exercise routine, or symptoms. Consumer
tools such as Greatist (general health
information), Zipongo (nutrition), and
Wello (fitness) allow consumers different
entry points to improve their “health
IQ” – and resources to help change long-
term behaviour.
Consumers have never had access to
this kind of data before. Neither, for that
matter, have their doctors (except in the
emergency department or intensive care
unit). Physicians tend to look at electronic
health records (EHRs) only when patients
are symptomatic – a few times a year (or
decade) – and the records are mostly
limited to clinical information. But we’re
approaching a time when the EHR will
incorporate real-time data on multiple
metrics, and the conversation between
doctor and patient will have greater intensity
and depth, supported by real-time data.
It makes eminent sense that a population’s
health managers would support and pay
for predictive, preventative, personalised,
real-time engagement that could help
consumers live without many acute health
events. Already, companies from BP to
San Francisco start-ups are giving their
employees Fitbits to track exercise and
sleep, thinking that knowledge is power and
can help to reduce healthcare spend while
increasing productivity.
The quantified self movement will set the
stage for long-term behaviour change
by engaging consumers and activating
social networks. By encouraging the
silicon players, retailers, and consumer-
health companies to enter the market,
the movement will catalyse the rise of
a consumer health market, counter-
balancing the current health producer-
centric world. And once consumers have
experienced health and wellness in a
connected, social or mobile, 24/7 retail
setting, they will inevitably come away with
higher expectations for service, access,
personalisation, and speed from their
care teams.

Finally, imagine the impact when trillions
of personal data points are connected
to a big-data analytical engine that can
perceive patterns and dispense advice.
Consumers will soon have access to IBM’s
Watson computing system for personalised
advice on health and wellness. Welltok’s
integrated CaféWell platform connects
health plan members to a wide range of
health improvement programmes, devices,
health and lifestyle information, and
applications in a single consumer interface.
With its Watson partnership, it is creating
CaféWell Concierge, delivering a uniquely
personalised experience and advice based
on the information gathered by Welltok
and processed by Watson’s big-data
computing capability.
This convergence of big data and consumer
social data – or whole population data and
individual data – suggests how the supply
side and smart care teams will be able to
radically improve prevention and care, in
addition to providing another pathway to
higher consumer expectations.
Philip Elmer-DeWitt, long-time Apple
watcher and online columnist for Fortune,
asks: “What if the more important market – the
one that’s ripe for disruption and big enough to
warrant Apple’s attention – is people for whom
things like pulse oximetry are a matter of life
and death?” He goes on to add: “Real-time
triage. Long-term observation. Correlation
with hospital records. With the baby-boom
generation about to move en masse into
government-subsidized health insurance
programs, nursing homes and hospice care,
those are serious growth markets. And if a
generation of young, healthy joggers could be
trained to watch for trouble signs before – not
after – they get sick, we’d all be better off.”
(fortune.com, 3 February 2014)
Exhibit 2
SUMMARY
HEART RATE BLOOD PRESSURE
SYSTOLIC
mmHg
DIASTOLE
mmHg
110 BPM
GOOD GOOD GOOD
BODY MASS LDL CHOLESTEROL
CHOLESTEROL: 250
120
80
QUANTIFIED SELF, THE BRIDGE
TO A PERSONALISED HEALTH
AND WELLNESS MARKETPLACE
HEALTHY LIVING
REWARD EXCHANGE
SOCIAL AND EXPERT
COMMUNITIES
Real-time
personalised
preventive
healthIncreased
relevance and
engagement
through social
communities
EXCHANGES AND
SHOPPING MARKET
Smart
personalised
shopping
HEALTHY LIVING
VALUE
• Steps or activity
• Sleep
• Nutrition
• Stress
• Weight
CLINICAL AND
HEALTH CONDITION
VALUE
• Blood sugar
• Weight changes
• Blood pressure
• Heart function
• Blood oxygen
EXPENSES AND
BUDGET VALUES
• Affordability
• Deductible status
• Exposure
• Pharmacy costs
• Reward opportunities
Source Oliver Wyman

And remember, many life-preserving and
life-enhancing activities don’t require the
intervention of doctors. Could a company
like Apple persuade a substantial number of
consumers to open up their medical records,
share their biometric data, and treat their
iPhones as their main point of contact with
care, then persuade them it’s fun and cool?
In a few years, consumers will look back and
realise how antiquated the medical system
used to be: measure a handful of numbers
(such as high- and low-density lipoproteins,
triglycerides, glucose, and the A1c diabetes
blood test) every 12 to 18 months, hear a
few admonitions about diet and exercise,
and forget them without any follow-up or
coaching. Is that really how we did things?
Why didn’t we think to demand more?
IMPLICATIONS
FOR INCUMBENTS
When an industry is hit by a transition like
the one facing healthcare, incumbents face
tough challenges. Instances of existing
players navigating these successfully are
rare and worthy of note: IBM made it from
tabulating machines to mainframes to
minicomputers to PCs to outsourcing to
big data. Apple went from computers to
smartphones to personalised streaming to
active lifestyle management (dashboards,
shopping, and so on) to dynamic social
communities. What will it take for healthcare
incumbents to prosper in the new world?
We think existing players need to
understand how the new entrants are
redefining consumer expectations of
value, and then consider participating in a
redrawing of the landscape in which both
can win by creating new magnetic offerings
for consumers. External innovators are lithe
and well funded. They know consumers but
not healthcare. They are unlikely to displace
the incumbents, with their risk reserves,
actuarial science, contracted networks,
medical licences, and power to save lives.
For incumbents, the first priority is to be
honest about what they bring to the table
and what parts of their legacy business
models may play a lesser role going forward.
Leaders need to understand the relationship
between value creation, strategic control,
and the new profit zones. Value capture,
in particular, is highly sensitive to strategic
control. Too many organisations do the
heavy lifting required to create competitive
advantage, then fail to fully capture
the value.
Unlocking the incumbent’s dilemma is no
easy task. The rate of failure far exceeds that
of success. Through in-depth leadership
discussions with existing players and
innovators and careful study of non-
healthcare success stories, we found the
following five insights to unlocking the
incumbent’s dilemma.
CHANGE YOUR FRAME
OF REFERENCE
The future world combines health and
wellness, includes retail, and shifts the
market from supply-led to demand-led.
It also breaks the “healthcare is local”
paradigm through web services, mobile
apps, big data, and remote healthcare. If
you are operating your business within the
realities of today, reframing what the future
world will look like is critical.

Exhibit 3: Health plan skip generation plays
Incremental improvements on the current business model are not sufficient; skip generation plays through strategic
partnerships are essential in health market 2.0
PPOSANDNARROWNETWORKS
HEALTHPLAN 1.0
HEALTH PLAN 1.5
HEALTH PLAN 1.5
PATIENTCENTRED
CAREMODELS
1
2
3
Convenient
Care
Acute and
Complex Care
Services
Surgical and
Diagnostic
Procedures
In plan year
(and network)
marketplace
Major Diseases
and Conditions
Retail Healthy
Living Services TRANSPARENT
CONSUMER
MARKETS
Configurable
benefits
and network
HEALTHPLAN 2.04
TECH.AND
BIG
DATA
CAREDELIVERY
ECOSYSTEM
HEALTHYLIVING
ECOSYSTEM
CONSUM
ERHEALTH
VALUEM
ARKETS
Network model:
performance-based
Value based
benefits and
rewards
Medication
management
Coaching
Monitoring
Lifestyle/
wellness
E-health/
web-based
services
Weight
management
Home
services
Convenience
clinics
Exchange based
decision tools
Network model:
broad or narrow
Health and
pharmacy
benefits
My personal
budget and
risk tolerance
Value based
benefits and
rewards
Exchange based
decision tools
Network model:
performance-based
PPOSANDHIGH
PERFORMANCENETWORKS
Networks and
care models
Benefits
configuration
Personal
engagement
level
SMARTSHOPPING
TOOL
HEALTHMARKET 2.0
Source Oliver Wyman

BE AWARE OF YOUR PLACE
ON THE VALUE LADDER
Thinking you are best-in-class and an
industry standard while you are about
to be commoditised by a better-value
alternative is a peril of markets undergoing
transformational change. What happens
when Walmart redefines the convenient
care market? Or Theranos cuts the cost of
diagnostics in half while improving the value
by a factor of ten?
KNOW IT’S NOT A LEVEL
PLAYING FIELD
Many of the new players are consumer
web service companies competing at
silicon speeds, in a global marketplace,
using ecosystem thinking, and constantly
innovating. For these companies, five
cents of capital produces a dollar of
revenue – compared to many of the
incumbents where it takes a dollar of
capital to produce a dollar of revenue.
Not surprisingly, capital markets favour
the new players. Partnering then allows
incumbents to participate in that capital
market advantage.
SKIP A GENERATION
Continued improvements on the current
business model are required but not sufficient
(see Exhibit 3). Getting better at sickness care
or offering lower-cost health plans is great
in the short run but won’t drive a winning
position in the new race for consumer value.
Why not build a future market strategy
document – a “playbook” – based on next-
generation technology and introducing big
data, passive monitoring, and retail pharmacy
integration as part of the patient-centred
medical home strategy?
DON’T GO IT ALONE
Bridging health and wellness, becoming
a consumer company, redefining
personalisation, and deploying big data,
complex adaptive workflow, and passive
monitoring to prevent most acute events;
these are massive changes. When you take
a careful look at most incumbents through a
readiness lens, you realise there is a long list
of missing competencies. When you look at
the new players, you realise you don’t have
to build it on your own – and the capital
markets are already doing the heavy lifting.

AIR TRANSPORT
STEP UP THE PACE OF
GROWTH IN THE ALREADY
FLOURISHING AIR
TRAVEL INDUSTRY
SÉBASTIEN MAIRE

Imagine a world where airlines pay their
fleet by usage, the number of flights, or
even the number of passengers, and so have
nothing to do but manage the customer
relationship. A world where engine and
aircraft manufacturers such as Rolls-Royce,
GE, Airbus, and Boeing can identify and fix
technical incidents before they even occur.
A world where airports adapt the customer
experience to the preferences of individuals,
who waste no more time waiting or seeking
information. This is the world of air travel in
the era of the Internet of Things (IoT).
IoT presents a considerable opportunity
to create value for the air travel industry
(see Exhibit 1). All players – designers,
manufacturers, suppliers, airlines, airports –
could capitalise upon IoT in many ways to
optimise their operations, understand their
customers better, and develop new sources
of revenue. The idea of using smart objects is
not new. GE Aviation has used sensors in its
most innovative flight management systems
since 2007. Today, however, the real value
of IoT lies in the way objects are connected
and data is collected, aggregated, and
analysed, making it possible to boost the
performance of the entire industry or even
reinvent the business model.
Air transportation firms will be able to cash
in on new IoT technologies. According to
GE, optimising flight itineraries would allow
airlines to reduce their fuel consumption by
1%, saving $30 BN over the next 15 years.
Reducing the number of technical incidents
or the time needed to solve them would also
have a real impact on maintenance costs,
aircraft utilisation rates, and overall customer
satisfaction. Data has thus become the most
invaluable component of tomorrow’s air
travel value chain, and industry players must
learn how to collect, process, and monetise it.
IoT can be applied in several domains
of air travel. All of the principal industry
players – aircraft manufacturers like Airbus,
Boeing, Bombardier, and Embraer, airlines
like American Airlines and Emirates,
or today’s large airports – use IoT to
optimise the business and reinvent their
customer proposition.
Exhibit 1: IoT in industry
AIR TRAFFIC
CONTROL
PASSENGER
EXPERIENCE
TOTAL COST
OF OWNERSHIP
AIRCRAFT AND EQUIPMENT
MANUFACTURERS
AIRPORTS
AIRLINE
COMPANIES
KEY VALUE CREATION DRIVERS
ILLUSTRATIVE STAKES
Source Oliver Wyman
THE INTERNET OF THINGSIOT SCENARIOS IN NINE INDUSTRIES Air transport

OPTIMISE
OPERATIONS
Reducing operating costs (like energy
and maintenance) and optimising flight
itineraries, crew management, and aircraft
life cycles will rationalise air operations and
ensure that assets are better managed.
REDUCE AIRCRAFT
OPERATING COSTS
Real-time in-flight analytics use thousands
of sensors and captors to study the itinerary
of each flight and recommend an ideal
itinerary to pilots in real time. For example,
by coupling aircraft parameters with weather
conditions such as wind speed, the duration
of flights can be reduced and fuel saved.
GE’s Flight Efficiency Services, for instance,
make it possible for airlines to optimise
their itineraries and adjust their flight
parameters – like the wing flap angle prior to
landing – to consume less fuel. Alitalia also
managed to reduce fuel costs by 1.5% in one
year and has saved $46 MM since.
OPTIMISE THE AIRCRAFT
LIFE CYCLE
Made possible by IoT, predictive maintenance
tracks key aircraft parameters in real time.
The A350, the latest generation of Airbus
planes, can record 600,000 parameters, or
twice as many as the A380. Moreover, the
speed at which data is transmitted between
aircraft and the control tower is accelerating
continuously, from less than 1Mbps in 2002
to 5 Mbps in 2007, and is even faster today.
Structural health monitoring instruments
enable Airbus to detect engineering problems
in the areas around doors with the installation
of fibre optics in key components to collect
real-time data and perform acoustic tests.
This process reduces unplanned maintenance
costs and makes it possible to track the state
of all key aircraft parts in real time. With
the average cost of maintenance at $1,200
per flight hour (including 43% ascribable
to engines alone) for commercial aircraft,
improving engine maintenance efficiency by
just 1% would generate savings of $250 MM.
Taleris, a partnership between GE Aviation
and Accenture, also offers a data analysis
and visualisation solution for predictive
maintenance activities. This tool improves
general aircraft reliability and reduces
turn-around time as well as grounding time,
which includes air turn-back and “aircraft on
the ground”, or AOG. (See Exhibits 2 and 3.)
MAXIMISE THE VALUE OF
THE AIRCRAFT
By collecting information on the state of each
aircraft component such as maintenance
history, it becomes possible to quantify the
residual value of individual parts, re-certify
them, and finally recycle or reuse them. A
true commercial opportunity emerges as
existing fleets age and as airlines, as well as
manufacturers, seek new ways to reduce costs
and maximise the residual value of fleets.
LOOK EVEN FURTHER
When a very broad set of data is known and
utilised, the total cost of ownership of aircraft
fleets can be optimised and risks managed
much better. It is then possible to imagine
moving to usage-based pricing. Rather
than selling aircraft, manufacturers could
rent them to airlines, whose operations will
therefore become more agile and better
adapted to the needs of the business.
Predictive maintenance will optimise the
aircraft life cycle. Finally, new IoT technologies
will make the spare parts market economically
viable and more attractive than it is today.

MEET CUSTOMER
EXPECTATIONS
MORE EFFECTIVELY
With IoT, it becomes easier for airport
operators, incumbent airlines, and possibly
newcomers (recent start-ups or large,
diversified opportunistic players) to offer
a multitude of innovative pre-flight and
post-flight services. Better knowledge of
customers will facilitate the reduction or
even elimination of many constraints. Today,
how can we change a taxi reservation in
the event of a delay if a passenger cannot
communicate during the flight? All industry
players will have new ways to make
passenger experience more pleasant and,
most importantly, more closely adapted to
the specific expectations of each customer.
Exhibit 2: Example of a regular aircraft maintenance plan – without IoT
TIME
Immobilisation Immobilisation
PERFORMANCE
Technical incident
Operability
threshold
Detection/Risk
Restoration
Detection/Risk
Restoration
Source Oliver Wyman
Exhibit 3: Example of a regular aircraft maintenance plan – with IoT
Reduced
immobilisation
Decision to intervene
Intervention planned Nominal restoration
TIME
Prepare
intervention
Monitor
parameters
PERFORMANCE
Technical incident
Operability
threshold
Reduced
immobilisation
Source Oliver Wyman

MOVE TOWARD PROACTIVE
AND INTERACTIVE AIRPORTS
Airports are now establishing solutions
to make it easier and more efficient for
passengers to move around.
Google glasses improve the
individualisation and quality of service
when customers check in to business class.
Automating check-in and security check
procedures has a positive impact on sales.
Indeed, according to SITA, a passenger
who has to wait ten additional minutes in
the security check queue purchases 30%
less before the flight. Optimising baggage
loading procedures or loading luggage on
planes only once passengers have boarded
(a solution provided by Amadeus and
SITA) helps to reduce delays. The Danish
company BlipSystems proposes solutions
to collect data from passengers to predict
and optimise security check flows. These
solutions helped the Cincinnati airport
save passengers more than 150,000 hours
of waiting. Likewise, IoT supports London
City Airport in its goal to become the fastest
airport in the world.
LAUNCH NEW PRE-FLIGHT
AND POST-FLIGHT SERVICES
Airlines and start-ups can offer complete
end-to-end service to high-value customers
to make their trip as comfortable as
possible. In the event of delay, on-board
sensors could communicate with airport
services during the flight to adjust the post-
flight itinerary of passengers, for example,
to notify the participants of an important
meeting that the flight of an attendee
is likely to arrive late. These services
allow incumbent players to reinforce the
customer relationship and differentiate
themselves, and in turn generate new
sources of revenue.
CONTROL AIR TRAFFIC
MORE EFFECTIVELY
IoT will help to densify – and thus
expand – airspace capacity, by making it
more transparent and secure. IoT will also
support the efficient use of existing airport
infrastructures and reduce the need to invest
in new landing strips; these are burning issues
for Heathrow and Munich. This is all the more
critical given the rapid rise in the number of
commercial passenger and cargo flights in
certain regions of the world. New geolocation
solutions, such as automatic dependent
surveillance, will make it easier to track the
exact position of individual flights in real time.
These solutions will also help to reduce delays
due to the still-wide distance between landing
planes. Using IoT, London Heathrow airport
eliminates 80,000 minutes of delay every
year. Finally, new support technologies, such
as the electronic flight bag, and real-time
information guarantee safer air travel.
The rise of IoT in air travel is accompanied
by the gradual transformation of incumbent
business models. Indeed, IoT affects aircraft
and equipment manufacturers as much as
it does airlines. IoT can potentially make
the aeronautical and aviation ecosystem
more flexible and responsive, in particular
by reducing delivery time and enabling
manufacturers, airlines, and airports to
collaborate together more effectively. It also
creates opportunities for players in other
industries, such as Accenture, Cisco, or IBM,
to enter the market and very rapidly capture
a share of the value generated by IoT.
VALUE IS SHIFTING TOWARD
DATA ANALYSIS
The quantity of information generated
by aircraft sensors is two to three times
larger than it was just a few years ago. For

reference, a Boeing 787 generates over 500
gigabytes of data per flight today.
Considering the complexity of information,
the value of the future model will be
proportional to the ability to aggregate this
data and draw valid and relevant conclusions
from it. By supporting airlines in their
activities, a player like Boeing can create
new sources of recurrent revenues and
reinforce customer relations. For example,
GE currently has a 1,500-terabyte database
(ten million flights between 2013 and 2015)
available for such analyses.
Certain components of the value chain can,
however, be collected by new companies
that are specialists in the analysis of such
data. As an illustration, understanding
operational and maintenance histories would
make the re-certified spare parts market
more profitable and support the emergence
of specialised players (the Google of
aeronautical maintenance) with the potential
to dominate this industry in the future.
REBUILD THE
Today’s airlines face a growing risk
of intermediation, as new start-ups,
in particular TripIt or WorldMate,
introduce innovative pre-flight and post-
flight services. Even if companies like
British Airways propose increasingly
sophisticated group holidays, competition
is intensifying for adjacent opportunities
(such as hotel reservations, car rental, and
shopping). Consequently, one of the key
objectives of airlines is to find a way to
monetise flight time while reinforcing the
customer relationship.
Passengers, until recently passive players in
an infotainment system with low interactive
content, are becoming active and captive
consumers of connected services. IoT thus
enables the emergence of very lucrative new
opportunities. The future will tell which of the
multiple players – airlines, manufacturers,
telecommunications operators, and so on –
will be able to seize them.
THE PRODUCT INNOVATION
AND DESIGN CYCLE
IS EVOLVING
Augmented reality and 3D printing have
become increasingly available to small and
medium-sized industrial players, which
previously did not have access to such
technologies. These companies, which are
second-tier suppliers or marginal partners in
the aeronautical world, now have more ways
to innovate. They can considerably reduce
the time needed between the initial concept,
prototyping, and serial production.
Aircraft manufacturers, however, could
soon be ambushed on the aeronautical
market by these players who used to be
relegated to the sidelines. If this happens,
manufacturers like Airbus and Boeing as well
as major equipment suppliers like Safran,
Thalès, Zodiac Aerospace, Honeywell, and
UTC should consider creating partnerships
or open innovation networks. By including
other players in their sphere of control, they
will reinforce their own innovation capacities
while sharing the revenues.
A Boeing 787 generates
over 500 gigabytes of
data per flight today

RETAIL
TECHNOLOGICAL
EVOLUTION,
BEHAVIOURAL
REVOLUTION
XAVIER MUSSARD

If only your grocery list could be automatically
compiled by all your household appliances,
put up for auction, and prepared by multiple
retailers or local producers able to offer the
best price and quality. Picture the scene as
Uber delivers these groceries right to your
door. And Fast Moving Consumer Goods
(FMCG) brands such as L’Oréal and P&G know
more about their customers than Walmart
or Carrefour, so they can make customised
offers. We can achieve all this with the help
of the Internet of Things (IoT) in retail.
IoT has the potential to modify the retail
landscape and FMCG. In the immediate
term, IoT will find its place in stores and help
improve sales by 10% to 20%, as well as
boost margins by ensuring better control of
product availability, reducing markdowns,
and improving the customer experience.
Nevertheless, the full potential of IoT is still
to come. IoT will facilitate access to customer
data – the key to customer relationship
management (or CRM) is currently the
exclusive domain of retailers – and redefine
the purchasing process from end to end. This
is enough to challenge the balance of power
between retailers and FMCG manufacturers
andeventheroleofretailersinthevaluechain.
IOT ENABLES
DIFFERENTIATED
CUSTOMER
EXPERIENCE
Retail is special in that it has already
experienced IoT v0.0 for over 15 years,
with the installation of radio-frequency
identification (RFID) technology. Far from
initial assurances and the promised big
bang, RFID has had mixed beginnings.
But over the past decade and a half,
the technology has gained in maturity,
RFID chips cost eight times less, and
complementary technologies such as near
field communication (NFC) and beacons
have been developed, with the potential
to transform the world of retail. To the
initial objective of inventory transparency
is now added the capacity to interact with
smartphones and any connected wearable
carried by customers.
THE INTERNET OF THINGSIOT SCENARIOS IN NINE INDUSTRIES Retail

As a result, Apple’s iBeacon makes the
customer experience more fluid and
intuitive. A geolocation system able to
interact with customers can propose
personalised offers, suggestions, and
promotions based on personal buying
history. Retailers such as Macy’s, Tesco,
and Virgin Atlantic are testing or deploying
hundreds of beacons in their stores to enrich
interactions with their customers. In London,
a growing number of brands are doing the
same thing on Regent Street. Shopkick,
one of the iBeacon marketing platforms, is
used in 3,000 stores, and boasts that it has
increased retail partner revenues by over
$500 MM in 2014.
Similarly, the use of RFID codes and smart
mirrors allows retail clothing distributors
to create a more memorable customer
experience. On the mirrors of its fitting
rooms, Burberry projects a short film
underlining the value of the product, its
origin, and its unique aspects. Adidas
NEO stores propose complete outfits that
could go with the product selected by the
customer. Retail is thus accelerating the
move toward relationship-based practices
(see Exhibit 1).
Another key component, the real-time
location of inventory, makes it possible to
anticipate potential availability issues. Now,
according to benchmarks, stock shortages
cause earnings losses of about 5% for
many retailers. With the ability to locate
inventory precisely, retailers can play with
pricing and promotion models, for example,
to push products close to their expiration
date, perhaps with an alert. In this way,
retailers can work more effectively with their
suppliers and reduce waste. According to
advance estimates, markdowns could be
reduced by as much as 50%.
These in-store initiatives offer both retailers
and suppliers many opportunities to improve
their sales and margins. However, behind
the tactical possibilities offered by IoT lies a
large-scale strategic upheaval.
Exhibit 1: IoT in retail and the customer relationship
STORE
SALE
REINFORCED CUSTOMER
RELATIONSHIP
TRANSACTION-BASED
TO RELATIONSHIP-BASED
PARTIAL
RE-INTERMEDIATION
RFID chips
Source Oliver Wyman

IOT EMPOWERS
FMCG BRANDS
The development of IoT is supported by
the exponential growth of accessible data,
shifting the balance of power between
retailers and FMCG manufacturers. In the
pre-IoT world, FMCG firms had few ways
to access precise data on customer buying
behaviour. Retailers, on the other hand, had
direct access to consumers and a detailed
vision of their behaviours – data largely
exploited for targeted marketing campaigns
and trade negotiations.
IoT upsets the status quo by enabling FMCG
brands to capture the data at the point of
consumption, without having to depend
on retailers any longer. This is where the
potential of IoT resides for them. According
to Accenture, 81% of branded product
purchasing decisions are made at home,
compared to just 19% in the store.
For instance, household appliance
manufacturers are developing refrigerators
that integrate connected technologies
functioning in cold environments, like
General Electric’s ChillHub, to identify
refrigerator contents and update grocery
lists. Another example, the Egg Minder egg
rack keeps customers informed remotely in
real time on the number and expiry date of
the eggs in their refrigerator.
How much longer until we have connected
cupboards, plates, forks, bottles, and
rubbish bins, which are now regularly
displayed at electronics fairs or are currently
being financed on crowdfunding platforms?
In addition to capturing detailed data on
user behaviour, connected objects provide
immediate service to their users through
the applications that support them. FMCG
brands appear to be very actively installing
connected objects and applications to (re)
create direct contact with their consumers.
L’Oréal’s Makeup Genius application uses the
telephone as a mirror and suggests make-
up to go with the user’s outfit. The Pampers
Village online community allows parents to
share advice and offer adapted products.
As well as the behavioural data collected,
these solutions provide a service valued
by consumers while constituting a less
commercial context than the store to offer
its products.
Direct access to consumers allows FMCG
firms to disintermediate retailers and gain
control of various commercial drivers. They
are now able to target their promotions – an
enormous advantage to the extent that the
promotional budgets of these players can
exceed €1BN in some countries. It is also
easier for them to identify opportunities
to develop products to satisfy specific
segments and propose new services. Finally,
knowledge of the customer is used during
negotiations with retailers and to build
merchandising plans.
Retailers are not nevertheless inactive and
are developing their own solutions based on
connected objects. The objective for them
is to preserve the direct link with existing
customers and attract new ones.
Darty, a consumer electronics retailer, for
example, has the Darty button (with 30,000
customers to date), which enables customers
with a simple press to be contacted by
Darty aftersales service concerning any
questions about the operation of one of the
brand’s products. This service monetises
aftersales service and underlines its quality,
while collecting information on all of the
customer’s products, including those bought
outside its network.

To cite another example, Amazon recently
launched Echo, a connected speaker that
can respond to vocal commands through a
virtual assistant called Alexa, with features
similar to Siri or Google Now. Echo collects
demands and anticipates the future needs
of its customers. In parallel, Amazon
has registered a patent for a method to
anticipate shipping of an order even before
the customer makes the purchase.
IOT TRANSFORMS
THE PURCHASING
PROCESS
The most fundamental change – but also
the most remote – generated by connected
objects is the modification of the purchasing
process. Connected objects are increasingly
automating the preparation of shopping lists
and order placement. These modifications
could endanger the traditional store model,
while taking the digital rationale engaged
by omnichannel and e-business even further
(see Exhibit 2).
Retailers and FMCG brands use the
opportunity offered by IoT to integrate
the purchasing process as far upstream
as possible, and they do this starting
in the home, where products are most
often consumed.
Danone, for instance, developed Smart
Drop, a connected button attached
to the refrigerator door to facilitate
ordering of Evian water on direct delivery
site evianchezvous.com.
Amazon has also developed the concept
of the connected button with Dash, which
makes it possible to configure buttons
for any product in the home (such as a
washing machine or refrigerator) to order
corresponding products and consumables
automatically (like Tide detergent, Gillette
razors, and L’Oréal moisturiser). The order is
then delivered to the customer, who doesn’t
need to do anything after pushing the button.
Amazon therefore positions itself upstream
from its traditional competitors, with multiple
optical instruments (Dash, Echo, Dash
Exhibit 2: The changing stakes of retail
TIME
IMPROVED IN-STORE CUSTOMER EXPERIENCE
IMPACT ON PRODUCT SALES, MARKDOWNS, AVAILABILITY
SIMPLIFIED HOME PURCHASING
STAKES OF DEVELOPING E-COMMERCE REVENUES
AUTOMATED TRANSACTIONS
STAKES OF DOMINATING THE ECOSYSTEM
Who will occupy this space?
Carrefour Sephora
Darty P&G
Amazon
Source Oliver Wyman

Button, and Amazon Fresh or Prime) to secure
a dominant position in the connected home.
These innovations nevertheless run the risk
of fragmenting the purchase of everyday
consumer products. For example, customers
can order Evian water and other consumer
goods through Amazon Dash, but buy fresh
fruit and produce from specialised local
suppliers. As things stand today, the cost of
delivering the last mile makes several small
deliveries relatively unprofitable compared
to one big shipment.
That said, the development of delivery offers
relying on the zero marginal cost economy
(Uber, Airbnb, Blablacar, and so on) could
constitute the missing building block for
IoT to develop direct sales. A new delivery
approach could thus challenge the one-stop
shop advantage proposed by bricks-and-
mortar stores and supermarkets. Start-ups
such as Onfleet have already established
flexible parcel deliveries that combine all
requests from users – regardless of the service
used – and ensure delivery after establishing
an optimised and profitable road map.
In the longer term, and by pushing the FMCG
order automation rationale as far as it can
go, human intervention may potentially be
reduced to a bare minimum in the purchasing
process. On the basis of preset parameters,
all the everyday product needs of consumers
would be captured and incorporated by
connected objects and their applications. The
latter would generate automatic requests, to
be sent to retailers or the suppliers offering
the best deal. This change of practice would
sharply reduce the influence of retailers and
focus attention on the network able to provide
customers with the best price-to-availability
ratio on their products.
Over time, traditional retail players face
the twofold risk of sacrificing market
share to the new channels opened up by
IoT, but also of being disintermediated
and losing the central role played in the
customer relationship.
Retailers can, however, anticipate the
changes to come and take a dominant
position in the value chain redefined by IoT,
in particular by:
•• Exploiting in-store opportunities
offered by IoT to develop their sales,
increase their margins, and improve the
customer experience
•• Capitalising on their omnichannel
know-how and extending the playing
field to the new uses generated by IoT
in the home, preventing other players
from taking control of the customer
relationship and purchasing process,
integrating the uses of IoT into existing
online solutions, and thus preserving the
advantages of the one-stop shop
•• Building the ecosystem of tomorrow
by exploiting the features of IoT and
redefining how they are used, namely
to control the data capture objects,
exploit information, and support traffic
generation while providing a value-added
service, specifically through strategic
partnerships with other IoT players.
In an ecosystem undergoing a major
transformation, retailers must adopt a
proactive approach to the changes to come
and reinvent their profession to avoid finding
themselves isolated from new distribution
practices. Learning how to test various
strategies and concepts will enable them to
identify what is feasible and what works while
having a clear vision of the desired objective.

INDUSTRIAL INTERNET
A FOURTH INDUSTRIAL
REVOLUTION?
GUILLAUME THIBAULT
XAVIER RUAUX

FROM TRANSACTION-
BASED TO
RELATIONSHIP-BASED
INDUSTRY IN THE AGE OF THE
In a few short years, digitalisation has
disrupted service markets: retail (Amazon),
tourism (Booking), music (Apple), media
(Google), transportation (Uber), and so on. It
has also affected professional services (cloud
computing, for example). However, its full
effects have not yet been felt in the industrial
world, given, on the one hand, the tangible
nature of the products sold and, on the other
hand, the barrier often posed by distributors
obstructing the relationship between
manufacturers and end customers.
IoT is changing the game by making industry
enter the digital era head first. The possibility
of connecting objects to the internet opens
a vast range of commercial opportunities.
Equipped with a chip or sensor, all goods
can now give rise to new services, which
enhance the way these products are used or
reposition them as service terminals.
Alerts and notifications. Smart Whirlpool
appliances notify their users when a washing
cycle is complete or when the refrigerator
door is open, using an iPhone application.
The m2ocity telecommunications operator (a
Veolia and Orange joint venture) can notify
the local maintenance team when there
are technical incidents concerning public
utilities (leaking water pipes, for instance).
Remote configuration or control. Airbus
has developed e-solutions, a suite of services
to optimise flight and ground operations
(including fleet management, engineering,
maintenance preparation, and flight
operations), while Airbus’ AIRMAN-web
offer (for AIRcraft Maintenance ANalysis)
tracks flight operations online and corrects
bugs remotely.
Maintenance and renovation. Using data
captured by sensors and analysed remotely,
ThyssenKrupp automatically launches
maintenance on its elevators, reducing costs
by 30% and breakdowns by almost 70%.
Solutions. Having data on how their
equipment is used enables manufacturers
to offer customers complementary services
and even complete solutions. Sanofi
created a centre of excellence dedicated
to integrated care. This model connects
digital tools to terminals, for example, to
track blood sugar levels and send alerts to
doctors automatically.
IoT has the power to reposition certain
products into service platforms, open
to proprietary residential applications.
In business-to-consumer (B2C), the
smartphone will become the aggregator
of preference for services (home, health,
leisure, transportation, and so on). In
industrial markets, many products will play
a similar role (for instance, in production or
logistical cockpits, machine tools, vehicles,
and other capital equipment).
As a service platform, the connected object
opens the door to new revenue models:
payment by usage, paid services (by
customers or through commissions paid to
application providers), and monetisation of
data collected from third parties. Safran and
Michelin, for example, invoice their products
according to flight time or miles driven.
So a new era is dawning for manufacturers.
Until now, the products were sold on a
transactional basis, according to their
intrinsic characteristics (like price or quality).
Manufacturers, with little visibility on how
their products were used, suffered from a
high risk of attrition.
THE INTERNET OF THINGSIOT SCENARIOS IN NINE INDUSTRIES Industrial Internet

Conversely, the products of tomorrow will derive their
value from the services they host. Associated with the
potential of big data, the connectivity of these products
will allow manufacturers to establish a longstanding
relationship with their owners. Manufacturers will have
a better understanding of how their products are used
and will be able to interact with owners by sending them
alerts, proposals, and personalised offers in push mode.
GE Aviation is one of the companies that has managed
to transform its business model, and has successfully
branched out from aircraft engine sales to operations
analysis and optimisation through the Flight Efficiency
Services or Intelligent Operations Services offered by
Taleris, its joint venture with Accenture.
A NEW OPERATIONAL
MODEL
INDUSTRY 4.0
Product networking constitutes the real IoT revolution.
The principle behind cyber-physical systems is what
connects objects and enables them to interact without
human intervention for a specific purpose, such as
optimising smart grids or enabling autonomous
movement of vehicles or robots. Industry 4.0 is another
application of this. According to this vision, the value
chain is entirely digitalised, connecting the supply chain,
production, and customers from end to end and opening
the door to a potential fourth industrial revolution.
In the customer’s home, connected products will
generate data that will be aggregated remotely
not only to recommend new services (advice,
maintenance, or inventory control) but also to optimise
production planning.
In certain cases, automatic renewal will be offered to the
customer and production orders will be sent directly to
the factory. In others, the customer will initiate orders
through a digital channel, such as an e-commerce
gateway or by electronic data interchange (EDI). In
all cases, complete digitalisation of the order will
enable production to be conducted according to a lean
approach, free of inventory.Source: Bitkom, VDMA, ZVEI, German government
INDUSTRY 4.0
Industry 4.0 is originally the name
of a work group formed in January
2012 in Germany by the National
Academy of Engineering Sciences
(Acatech) and supported by the
Ministry of Education and Research.
This group includes manufacturers
(Siemens, ThyssenKrupp, BMW),
equipment suppliers (Bosch,
Trumpf), technological services (HP,
Cisco, DAP) and major federations
like Bitkom (high technologies),
VDMA (machine tools) and ZVEI
(electro-industry). Its purpose is
to take advantage of the country’s
relative advantage in the field of
integrated software systems to break
IoT down for industrial processes.
The group initiated several common
research programs for an investment
which will attain €2.6 BN by 2020.
Partnerships formed in 2015 concern
communication tools (DT and SAP),
cyber-security (DT and Infineon Tech)
and production software (SAP and
Huawei). According to estimates,
the program could generate annual
growth of 2.2% for German industry
by 2020, as well as a productivity gain
of 18% over the same period. The
“Factory of the Future” plan revealed
by the French government in May
2015 was inspired by this program.

At the factory, completely automated production will
be enabled by a new generation of production lines and
smart robots, such as KUKA’s robotic assistant LBR iiwa.
Production lines will react to information received in
real time (such as order book status, characteristics of
materials entering the production line, and the status
of other machines) to adapt their parameter settings
in terms of rate, quality, labelling, packaging, signage,
and so on. Better production line synchronisation by
reducing downtime – already in place at Siemens – will
help to reduce energy consumption by more than 10%.
The machine of the future will be general-purpose and
permit the production of individual batches according to
customer needs. SAP is already developing production
lines that can manufacture remote control units or cell
phone cases from the same plastic cases.
Of these new processes, 3D printing is the most
dynamic and is growing annually by more than 20%.
3D printing helps to reduce industrial waste, drive
down manufacturing costs, and increase flexibility
and responsiveness. This technology, increasingly
widespread in industrial processes, is expected to
represent a €10 BN market worldwide in 2020, with more
than 30% of it in Europe. GE hopes to realise 50% of its
worldwide production in this manner in five years’ time.
At the factory door, logistics will be optimised by
being digitally integrated with the preceding stages
of production. A continuous flow of information,
from the customer order to distribution, will make it
possible to reduce the volume of inventory. Centralised
and digitalised, forwarding will be optimised using
algorithms to minimise manual intervention. During
handling, products will themselves contribute to
the efficiency of the process by sending alerts and
instructions to stakeholders. Transmitted information
will concern details like the location and destination of
goods, the operations required for their packaging, and
their quality and status.
Industry 4.0 could hence generate productivity gains of
20% to 40%. Combined with the trend toward higher
wages in emerging countries and transportation costs,
these transformations could restore Europe’s competitive
standing and drive the reindustrialisation of the continent.Source: Festo AG, SAP
SAP-FESTO
CONSORTIUM
SAP and Festo (production solutions
provider) have developed an Open
Integrated Factory offering designed
to build automated production lines.
On these lines, all parts are equipped
with an RFID chip connected to
ERP and ME (production process
management) systems. The chip
contains the instructions necessary
to manufacture the finished product,
which is communicated to all
workstations on the line (furnace,
laser, etc). These workstations
carry out the designated tasks
and communicate in turn on their
realisation. According to Chen Jun,
the CEO of the first factory in China
have this type of production line, this
system saves 40% on the production
costs of a customised Land Rover.

A SIZEABLE CHALLENGE
FOR INCUMBENTS
The prospects offered by IoT represent a considerable
challenge for traditional manufacturers. The obstacles
they face are simultaneously strategic, technical,
and human.
Above all, the challenge of IoT is transformational.
European corporations inherited organisations that
were structured to standardise processes, reduce risk,
and manage security, with a long-term perspective.
Disrupting traditional patterns, IoT confronts these
companies with challengers as recent as Google,
Amazon, and Fab Labs1. How do we transform a culture
of engineering, production, and control into a digital,
open-innovation service culture? How can we get away
from and stop trying to optimise a marketing approach
that is often product-centred when what is required is an
approach focused on customer needs?
The technology issues that internal teams are ill-
prepared to resolve range from the links with existing
systems to the modelling of cyber-physical systems, not
to mention standardisation, virtualisation, high-speed
infrastructures, and cyber-security. The market has not
yet provided satisfactory answers to these problems.
In addition, people are often focused on maintaining
professional tools and enterprise resource planning
(ERP) in good working order, even though these systems
are often cumbersome and difficult to modify.
Finally, incumbent manufacturers encounter human
issues when seeking to recruit people with new skills
(in digital marketing or data mining, for example), to
work transversally (across marketing, R&D, and IT) and
overcome reticence, review existing roadmaps, develop
risk taking, and encourage test-and-learn approaches.
IOT IN INDUSTRY
DRIVERS OF VALUE CREATION
4
6
5 3
21REDUCED CONSUMPTION,
AUTOMATION AND FLEXIBILITY,
OPTIMISED SUPPLY CHAIN
20-40%POTENTIAL
PRODUCTIVITY GAINS
IMPROVED TIME-TO-MARKET
AND E-TRACEABILITY
40-70%REDUCED RATE
OF UNAVAILABILITY
OPTIMISED AND
PERSONALISED CONSUMPTION
100%DIGITAL CUSTOMER DATA
DEMAND FORECASTS AND
ASSET OPTIMISATION
10-20%AUTOMATED ORDERING
CUSTOMER BASE
DEVELOPMENT
+10-30%RETENTION OF EXISTING
CUSTOMER BASE
SALES EFFICIENCY,
NEW BUSINESSES
15-30%SHARE OF SERVICES
IN REVENUES
New offerings
Sales initiatives
CRM and
marketing
campaigns
Data mining
Production
cockpit
Customer
scorecard
Suppliers Factory
Connected
objects
Local aggregator
data
Logistics
Inventory
Source Oliver Wyman
1 Shared production workshops, or Fab Labs, provide entrepreneurs, craftspeople,
and private individuals with all sorts of tools, specifically computer-assisted
machine tools, to design and make objects (prototypes, limited series, or
spare parts).
72Copyright © 2015 Oliver Wyman. All rights reserved.
Industrial InternetTHE INTERNET OF THINGSIOT SCENARIOS IN NINE INDUSTRIES

MAIN RISKS OF NOT TAKING
A PRE-EMPTIVE POSITION
Under these circumstances, why not wait and let start-
ups find their position before imitating them – or even
acquiring them? We believe that inaction is much riskier
than anticipation. The first movers will be able to take
advantage of scale effects linked to network economics.
On the other hand, the development of connected
products will probably accelerate the commoditisation
of products that fail to turn the corner in time.
If nothing is done, IoT is likely to fragment and
reintermediate the value chain, with the rise of
new competition.
R&D. 3D printing lowers entry barriers by making
product innovation faster and more economical (by 30%
to 50% for Solomon, for example). The development of
Fab Labs exposes the laboratories of large corporations
to new competition by nimbler local entrepreneurs.
Production. The Factory of the Future offers the
prospect of developing low-cost operators, which play
on the complete digitalisation of their production and
distribution processes to compete with incumbent players
whose production units cost too much to modernise.
Customer relationship. Unless adequate in-house skills
are developed, the customer relationship risks being
gradually outsourced, and precious data aggregated and
analysed by specialised big data players (like Google).
To avoid this, it’s a good idea to imitate Apple, which
succeeded in keeping complete control of the customer
data collected on its terminals, in order to monetise
them to third parties.
Aftersales services. In many industries, the sale of
spare parts is a lucrative and tightly controlled business
(50% to 80% in the aircraft industry). In this respect,
3D printing offers local players the opportunity to
provide parts within much more attractive costings
and timeframes.
A NEW SPARE
PARTS STRATEGY
FOR SIEMENS
Siemens uses Selective Laser
Sintering (SLS) technology to repair
its customers’ gas turbine blades.
Rather than replace an entire part
(such as the burner), Siemens simply
removes the damaged part then
uses SLS to 3D print the replacement
part using more resistant materials,
called superalloys. This technology
reduces turnaround time from 44 to
four weeks and cuts maintenance
costs. The new process also helped
Siemens redefine its spare parts
replacement business model from
a centralised system with a single
storage space and very high volumes
to a decentralised, on-demand
production system.

LAUNCHING IOT
PROJECTS: THREE
KEYS TO SUCCESS
START AGAIN FROM A
CUSTOMER PERSPECTIVE
From conversations with our clients, we
understand there is an extremely strong
temptation to initiate IoT projects with
the question “To what objects could we
add sensors?” before wondering “What
could we do with the collected data?” This
type of approach won’t build a business
that is sufficiently robust to justify the
required investments.
The problem must be put differently: “What
new services would bring value to our
customers?” A good starting point can be
the organisation of discussion forums with
sales teams and customers. The latter will
advance expectations usually discredited or
considered to be foreign to the company’s
business model: new or personalised
services, mobility, ergonomics, payment by
use, and so on.
This preliminary work will pave the way for
thinking about new offers and ultimately for
repositioning the company strategy from
the viewpoint of solutions. Simultaneously
analysing the portfolio of internal assets and
technical opportunities will make it possible
to imagine potential digitalisation scenarios.
TAKE ONE STEP AT A TIME
Integrating IoT opportunities into current
business models will take time and a certain
number of iterations; hence the importance
of taking the first steps quickly. Moreover, we
recommend adopting a flexible and modular
approach in a pilot environment, working
with standard tools paid according to use,
and moving forward step by step in test-and-
learn mode. Concerning the content, short-
term optimisation projects with an impact
on revenues (predictive maintenance, new
products, and so on) could be conducted
alongside longer-term projects with
an impact on operational effectiveness
(including automation of production and
connected logistics).
ADOPT NEW
OPERATING PRACTICES
In addition to revisiting the vision for
2025 in the light of Industry 4.0, a major
transformation in operating process is
required to instil an entrepreneurial spirit,
agility, and speed of execution.
Industrial divisions will have to open up to
the outside world to assemble consortia
with technological leaders and take part in
smart manufacturing. This is what Siemens
did with McAfee for data security, and Festor
with SAP to automate production. Human
resource models will have to support the
development of internal entrepreneurship,
risk-taking, and transversal and project-
oriented work approaches with better
knowledge sharing. A certain number of
large business organisations will become
flatter, more networked, and more
supportive of intrapreneurial initiatives.
THE INTERNET OF THINGSIOT SCENARIOS IN NINE INDUSTRIES Industrial Internet

SMART BUILDINGS
WHAT ARE THE IMPACTS?
WHAT ARE THE STAKES?
DAVID KAUFMANN

In a connected office, the security system
recognises employees who have just
entered the building and it starts heating
or air-conditioning their work area or the
conference room they have reserved. At
home, smart appliances use the energy
provided by new-generation batteries,
stored from the previous night after being
obtained from the network at the lowest
possible price or produced by the home’s
own solar panels. In shopping malls,
beacons recognise the individual who
approaches them and offer personalised
recommendations or promotions. Airports
trace the movement of each passenger’s
bags in real time and notify passengers
of estimated waiting time as soon as they
debark from the aircraft.
This was the vision of the near future for
real estate and construction industries in
the age of the Internet of Things (IoT). And
now the vision is becoming reality. A visit
to the most modern buildings is enough to
be convinced that the building market is
undergoing a substantial transformation.
Whereas real estate has always represented
the core value, this value now appears to be
migrating to new components.
Buildings are no longer defined exclusively
by the materials that compose them but also
by the possibilities they offer. They must not
only shelter and protect but also make their
occupants’ lives easier, preserve their health,
respect the environment, melt seamlessly
into the cityscape, and be used as interfaces
with new web technologies, including
IoT sensors. We should add that these
multifunctional buildings also need to be
increasingly modular. While they used to be
built to last, they are now designed to evolve.
WHAT’S ALL THE
FUSS ABOUT?
The IoT revolution in construction and
the transition to connected buildings
is part of a much broader revolution in
housing, which is decreasingly static and
increasingly dynamic. Still in its infancy, the
connected building market is fast becoming
democratised and raises strategic issues.
It consequently comes as no surprise
that a growing number of players are
vying for a position to benefit from this
potential windfall.
THE INTERNET OF THINGSIOT SCENARIOS IN NINE INDUSTRIES Smart buildings

THE SMART BUILDING
“SMART GRID” CONNECTIONS
(AND THE “SMART CITY”)
SECURITY AND ACCESS
ENERGY AND UTILITIES
Air-conditioning, heating,
lighting, water
PEOPLE TRACKING
Flow management,
direct marketing
HOME EQUIPMENT
“Infotainment”, work systems,
physical comfort and hygiene
HEALTH
Air quality,
specific types
of tracking
“Smart building” features vary by segment
(such as individual or collective housing, shopping
malls, hospitals, airports, schools, and prisons).
Smart buildingsTHE INTERNET OF THINGSIOT SCENARIOS IN NINE INDUSTRIES

There are, primarily, three factors
that explain the interest in connected
buildings. Mentalities have changed
due to the importance of the stakes and
regulatory constraints (buildings account
for 40% of total energy consumption and
almost as much CO2 emissions). The
rising penetration rate of smartphones
facilitates connectivity and management
of IoT throughout the home. The cost of
various sensors is dropping as the speed
of processing corresponding data rises (a
sensor costs €0.5 today on average, which
is a drop of approximately 50% in ten years).
The arrival on this market of giants Google
(which acquired Nest for $3.2 BN in February
2014) and Apple (with the announcement of
HomeKit in June 2014) have confirmed and
accelerated this trend.
WHAT DO WE MEAN BY
“CONNECTED BUILDINGS”?
A connected building refers to five
complementary areas of activity, shown
in Exhibit 1: energy and related services
linked to the immediate environment of
the occupants (heating and cooling, water,
lighting, and so on); security and access;
piloting of equipment (such as infotainment
in the home, professional materials at work,
and devices supporting physical comfort and
hygiene); people tracking (including flow
management and direct marketing); and
finally, health (air quality, specific movement
sensors, and so on).
It should be noted that the concept of the
connected building is dependent on the
specific needs of each building, based
on its function. This confers a variable
importance to each of the areas cited above.
For example, hospitals will require systems
dedicated to tracking patient activity and
alerts concerning disease-causing agents;
police stations and prisons will need
equipment related mainly to security; while
shopping malls and airports will stress
security but also geolocalised or even
individualised advertising, and the need to
direct passengers and customers on site.
Smart facility management has existed for
a number of years without any mention of
connected buildings as we define them here.
Indeed, the five areas of activity described
above generally function singly in a non-
integrated manner (lighting, alarm systems,
and sound systems, for example, have been
separate). The suggested solutions thus
did not always exploit all of the possibilities
offered by technology. This is no longer true
for the most recent systems, which, instead of
regulating activities with static programming,
take real user needs into account and even
possess the capacity to learn.
WHAT DOES IOT
HAVE IN STORE
FOR CONNECTED
BUILDINGS?
Energy costs are incontestably on the front
line in the IoT revolution in construction,
with total expected impacts of about 40% on
buildings that are equipped with the latest
technologies. Personalised systems are the
key to maximise savings. A lighting system
that adjusts lighting according to time of
day or human presence is estimated to save
approximately 15% additionally. Likewise,
using a smart thermostat like the one
produced by Nest would make it possible to
cut an energy bill by 10% to 15% more.

The promises of IoT are not restricted
to energy. IoT will improve the general
physical comfort of users: fresh air, tracked
health, lighting adapted to their activities,
greater security, improved for example by
directing occupants dynamically in case of
fire. Dedicated business systems suggest,
moreover, that improving the physical
comfort of employees reduces sick leave and
increases productivity.
For very specific connected buildings, such
as shopping malls, the impact will also be
measurable in revenue terms, in particular
through inexpensive and highly effective
advertisements targeted in real time.
We must not forget, however, that the
principal impact of a building is social. All of
these effects, although enormous, often go
unnoticed because they are not immediately
visible. What could be said, for instance, of
the completely new savings that IoT could
generate if connected buildings helped the
elderly to remain at home, if only for one or
two more years?
Reasoning on the scale of a building – even
a connected one – is insufficient, however,
because it is our whole urban lifestyle
that is changing through IoT. The move
toward smart cities is under way, with
different “islands” – homes, vehicles, roads,
buildings – that will be interconnected
tomorrow to amplify the effects of
this transformation.
In the context of urban growth, IoT will be
an essential component, for example, in
combating traffic congestion and managing
parking spaces by directing vehicles. IoT will
also be able to accelerate the deployment of
police, firefighting, and emergency services
thanks to instantaneous information on
site and according to the type of need. The
energy consumption of buildings could
also be modulated according to peaks of
consumption in the city as a whole.
HOW WILL THE
CONNECTED
BUILDING MARKET
EVOLVE IN THE
MEDIUM TERM?
The connected building market is currently
going through a transition. Five to ten years
from now, we expect a gradual lowering of
the barriers to the establishment of a fully
integrated and optimised environment
enabling greater penetration of IoT solutions
into urban life. A number of obstacles to
development will gradually be lifted.
Initially, communication protocols
between connected objects will slowly be
standardised, then interfaces will become
more ergonomic to culminate in a simple and
effective all-in-one piloting system, covering
all areas of connected building activity.
Capacity analysis will rise significantly,
and the security and trust aspect will
be reinforced, little by little, through
agreements on the use of personal data and
protection of systems against intrusions.

WHAT ARE THE
STAKES FOR
CONSTRUCTION
PLAYERS TODAY?
While IoT is triggering a major
transformation of the smart building
market, we are witnessing a migration
of value toward specific new segments.
This transformation represents both
an opportunity and a risk, namely the
opportunity to collect this new value or
the risk of seeing it fall into the hands
of competitors. The risk may be even
more acute if the value created is not
completely additional and if the value of
the goods or service previously provided
declines simultaneously. To capture
value migrations, all construction market
players in the broadest sense are currently
investing in the connected building, from
property developers to manufacturers
of objects for the home, not to mention
public service network operators and
major telephony and internet players.
Four areas of value migration in particular
are highly likely to be targeted for the
growth and risk management strategies of
these players.
A first target would be the hubs allowing
integrated management of all connected
objects in a building. Many players want to
build simple and effective hubs, more or less
open and complete, to overcome current
silos. Security and lighting, for example, still
too often function with separate proprietary
applications. The goal of these players is to
offer innovative solutions by interconnecting
various objects that were previously
unlinked. For instance, Nest is planning to
use its agreement with Mercedes-Benz to
enable a gradual increase in the temperature
of the home according to the estimated time
of arrival of the occupant.
The aim is to centralise the various services
so that they can be managed from a single
central cockpit – where construction and
real estate players can capture real value.
The Bouygues Construction Energy-Pass
tool is a case in point, making it possible
to track electrical energy and thermal
consumption. Apple has HomeKit, and
the Google Nest Works network partners
with brands like Whirlpool, Mercedes,
and Philips. Let’s not forget SmartThings,
acquired by Samsung in late 2014, AT&T’s
Digital Life, ARCHOS’ Smart Home, Staples’
Connect, Cisco’s Smart+Connected,
Castorama’s Blyss integrated home
automation solution, Legrand’s My Home,
Somfy’s TaHomA interface, SFR’s Home and
Orange’s Smart Home, not to mention the
facility management systems of Schneider
Electric and ABB. The offer is plentiful, and
it is still difficult at the moment for potential
customers to have a simple and clear vision
of proposed options.
Analysis and optimisation systems enabling
the processing of collected data form the
second strategic dimension of the IoT
revolution. Sensors installed in connected
buildings generate a profusion of data that
can prove highly valuable if sorted with an
adapted analysis tool. Various companies
have been created to address this promising
niche, such as the French Fludia, Effineo, and
Actility, or the American Bidgely. It is also
important to note the investments made
by companies like Ondeo (a subsidiary of
Suez Environnement) in smart water, Edelia
(a subsidiary of EDF) in the optimisation
of resource and energy consumption, and
m2ocity (a joint venture of Véolia Eau and
Orange) in the analysis of gas and water
meter readings.

We generally believe that decision-making software will gradually
replace the equipment at the heart of the system. Service will be
increasingly responsible for adding value in the future, while the
equipment will probably be provided free of charge rather than
sold to users.
Less visible, the digital revolution that manufacturers are
experiencing and to which they must adapt goes beyond IoT.
New technologies are on the way to transform the construction
industry profoundly, from initial contact with the customer until
final delivery, including facility management and operation, and
even the end of the product life cycle. It is no longer a matter of
experiencing each step of the process separately, but of integrating
all processes into a centralised digital model.
Significant gains are expected in terms
of cost, quality, and cycle time (including
increased precision, more effective execution,
and faster time-to-market) but also in
terms of revenues (with better customer
communication, greater simulation and
display capacity, and more transparent
offering and price).
IoT will also play an increasingly important
part in construction processes by optimising, for example,
construction site logistics and energy management, predictive
equipment maintenance, various materials and wiring tests, as well
as security management.
At a time when the IoT market in the construction industry is being
structured, the essential issue for companies is to get themselves
in battle order – quickly, given the speed of technological changes
and competitor initiatives – so they can capitalise on the migration
of underlying value while managing the risks. This will require
determining the market environment precisely (its growing
segments and competition) and redefining the strategic plan
clearly (including its objectives and positioning) before defining
the methods to deploy it (such as partnerships to be signed,
potential acquisitions, which skills and tools to acquire, and the
necessary organisational adaptations).
Growth strategies
specifically target four
high-potential value
migration zones

UTILITIES AND SMART GRIDS
A NEW WORLD
GUNESH DWARIKA
JAN KRAL
THE INTERNET OF THINGSIOT SCENARIOS IN NINE INDUSTRIES

Think of a world where Google becomes
the key player in energy services in both
the residential and business markets.
Positioning itself as a direct intermediary
between a local energy supplier and the end
customer, it would rely on its data centres
and machine learning algorithms to predict
individual demand, and thus predict needs
in advance. It would use its own production,
distribution, and energy storage capacities
or, in certain cases, those of its partners, to
reduce the energy bill of its customers in an
entirely new way.
In this world, energy would be produced
by a multitude of decentralised producers,
potentially including private individuals. It
would be bought at the best possible price,
thenstoredinnewgenerationbatteriesbefore
being used at the most convenient time.
The price of energy would therefore evolve
constantly according to the fluctuation of
supply and demand. The first building blocks
ofthisnot-so-futuristicsmartutilitiesvisionare
already being established in some countries.
GAFA (Google, Apple, Facebook, Amazon)
have relied on machine learning for several
years to optimise the energy consumption of
their data centres. Energy storage solutions
are becoming increasingly reliable and offer
industrial-scale potential. Operators are
innovating with peak and off-peak pricing
offers, which already exist in Sweden, Italy,
France and other markets.
Technological innovations and professions
related to the Internet of Things (IoT) are
gradually transforming the public utilities
market (electrical power, water, and gas) in
two ways. On one hand, smart meters and
numerous sensors throughout the home
enable managed resource utilisation and
responsible energy consumption. On the
other hand, more flexible transmission and
distribution infrastructures (smart grids)
also emerge.
All value chain players benefit from these
innovations, including producers or
distributors of energy or water, equipment
manufacturers, support service providers, or
data analysis experts. But the distribution of
the total value created, which will determine
the winners and losers, is not yet complete.
SMART ELECTRICITY
METERS AS
A CORNERSTONE
Connected power infrastructures weren’t
invented yesterday, and examples abound
in Italy, Sweden, Canada, or Australia. But
a recent European directive requires the
penetration rate of smart meters to reach
at least 80% by 2020. Combined with
new consumer expectations concerning
environmental responsibility, the regulation
is reviving debate throughout Europe.
The implementation of advanced metering
infrastructure (AMI) is the first step toward
innovative services for consumers and
optimised operations for energy players
(see Exhibit 1).
THE INTERNET OF THINGSIOT SCENARIOS IN NINE INDUSTRIES Utilities and smart grids

Residential water, gas, and electricity
measurement points bring consumers
closer to the distributor or producer,
with an almost immediate relationship.
Consumers gain a more detailed and
reliable view of their consumption and the
option of receiving alerts if they exceed
a defined threshold. They are given an
opportunity to play an active role in
managing their budget, through services
such as demand response, or to switch
operators. For example, the American start-
up Ohmconnect sends text messages to its
customers during periods of peak energy
demand to allow them to reduce their
consumption in real time and save money.
Constrained by a strict smart meter
deployment calendar, the electric power
community has gained an edge on gas
and water players. In this market, IoT will
probably reshuffle the cards while shifting
the allocation of market share in favour of
operators through a process of contract
cancellation, more fluid subscription, and
more competitive offers (off-peak hours or
peak hours). In a similar vein, the British
regulator Ofgem requires that, from 2018,
consumers are able to switch suppliers in
less than 24 hours.
The management of remote meters will
make it possible for consumers to change
their options or switch operators more
easily. With meters managed remotely,
the time required to transfer to a different
energy company could be reduced from
a few days to a few hours because a
technician no longer needs to intervene.
Anticipating this change, the European
Regional Development Fund (ERDF)
launched a “technician 3.0” contest for
start-ups and small and medium-sized
enterprises, inviting them to rethink the
profession of technician.
Transmitting customer data by smart
meters creates new opportunities for
innovation and personalised services. In an
environment where consumers are often
faced with an offering that is difficult to
decipher, new players could take better
Exhibit 1: Smart grid applications
POWER MANAGEMENT
POWER SUPPLY
AND DEMAND
NETWORK MANAGEMENT,
NETWORK VOLTAGE
(HIGH AND LOW)
ADVANCED
METERING
INFRASTRUCTURE
Source Oliver Wyman

advantage of the range of possibilities than
the incumbents. Regulation authorities in
some countries have provided for third-
party players, such as the comparison
engine uSwitch in the UK, to have access
to customer data and all market offers to
facilitate consumer choice.
In this context, incumbent players must
expand their portfolio of services based
on more precise customer knowledge and
advanced features in order to differentiate
themselves and maintain their market share.
IoT will accelerate the penetration of offers
with dynamic pricing and consulting services,
enabling customers to smooth out variations
in their electricity consumption and,
ultimately, reduce the final bill. Customers
in Sweden have had access to dynamic
pricing since 2012 and can adjust their usage
according to their choices. In France for
example, ENGIE (GDF Suez) says customers
who subscribe to its DolceWeekend tariff
could make savings ranging from €60 to
€130, based on an annual bill of €1,500.
Electrical power operators should also
supplement their offering with enriched
services, or even with other products that,
although previously unknown in the energy
market, customers recognise as credible. This
could involve, for example, supplying services
to manage home electrical appliances or
selling insurance. Direct Energie’s Tribu
and EDF’s e.quilibre allow customers to
compare their consumption with that of other
households and integrate information from
their home appliances. We expect prepaid
offerings to emerge on some markets, with
the objective of giving customers more
control over their energy bill.
In addition to customer acquisition
opportunities, operators will be able to
optimise their customer mix and margins
through individual offerings. For example,
low-margin customers – whose consumption
takes place almost exclusively during peak
hours – will get less attractive rebates. These
new pricing models will require skills that
many industry players do not yet possess,
such as the ability to aggregate and analyse
huge volumes of data. The survival of
incumbents will therefore depend on their
ability to deploy these skills, either in-house
or through targeted acquisitions or alliances.
By proposing new services and extended
home automation packages to consumers,
and enabling operators to market products
outside their core business, IoT will disrupt
the traditional business model and challenge
the established position of more than one
industry player.
THE SMART GRID
ACCELERATING
DECENTRALISED
PRODUCTION AND
PREDICTIVE MAINTENANCE
IoT represents a unique opportunity for
distributors and producers to propose
additional services to operators and to
realise major productivity gains. Distributors
are gradually investing not just in smart
meters but also in solutions designed to
reinforce the connectivity of equipment for
transmission and distribution networks.
These investments will considerably
optimise network management.

A transparent view of demand gives
distributors the ability to significantly
improve monitoring and to manage the
network more effectively. This means they
can better plan network maintenance and
limit unnecessary systems intervention.
Some start-ups, like UPETEC, a software
publisher specialising in predictive
maintenance, report cost savings of around
30% for distributors such as ERDF.
Distributors will also be able to pool features
like billing or managing geographical
customer information on behalf of several
operators, and hence diversify their revenues
while lowering operator costs substantially.
The most important changes will probably
come from producers, who will be faced
with competition from alternative producers
and storage players, particularly in the
electricity network.
IoT makes electricity supply more flexible and
helps small producers of alternative sources
of energy sell their offering more effectively.
Storing energy in off-peak periods and using
it at predefined times allows these producers
to more easily smooth out variations in power
consumption by distributors.
The greater variety of production methods
will call for new regulation and control
directives. In other words, distributors will
have to be even more robust and flexible if
they are to master the growing complexity of
supply and the announced diversification of
production equipment.
IoT will help to optimise the scale of the
production equipment of the industry as a
whole. The corresponding gain will lighten
consumer energy bills and make society
more environmentally responsible. The
British government, for example, estimates
that introducing new technologies will
generate a net value of £6.7 BN by 2030 in
the UK. The core of this new model relies on
data and, consequently, on analytical skills,
including for distributors. The latter are
thus torn between the need to understand
a customer view of the network and the
difficulty in accessing data in countries that
have complex legal frameworks.
The issue is a major one for power
distributors, which must find reliable
partners who can help make their network
renovation investments profitable. The need
for analytical skills is an opportunity for web
and cloud computing players who have
experience in processing huge volumes of
data in real time: experience which can be
applied to the utilities industry.

PREDICTIVE
MAINTENANCE AS AN
END IN ITSELF, NOT
JUST FOR READING
WATER AND GAS
METERS REMOTELY
The penetration of smart meters is currently
less advanced in water and gas. As with
electricity, smart meters will support a
more active market with easier and faster
cancellation and activation processes. The
opportunities to generate additional income
from services and innovative customer
offers have not yet been clearly identified.
In addition, ecosystems are structured in
very different ways in different countries. For
example, electricity and gas meters should
be deployed together in the UK and Ireland,
while France chose combined gas and water
meter deployment.
Pilot tests and alliances are proliferating to
seize opportunities to optimise operational
costs and future investments. Water and
gas operators are working to find a business
model able to reduce the operating cost
of, for example, controlling water quality
or precisely tracking network yield by
measuring flow at various points.
When incidents occur (leaks, theft, natural
catastrophe, and so on), it is now possible
to pinpoint their location more quickly and
thus shorten the time required to intervene.
The use of drones in maintenance and
surveillance solutions is currently being
studied, in particular for gas distribution
networks. Investments are being made
in projects like GDF Suez New Ventures’
Redbird and in partnerships such as the
Veolia and Orange m2ocity project.
HOW CAN YOU
TACKLE SUCH A
COMPLEX SUBJECT?
In a new era of IoT, the power industry is still
in its infancy. Operators will face competition
from digital players such as Google or IBM.
Incumbent local or regional players like
EDF and British Gas will be confronted with
alternative energy producers. For these
incumbents, IoT represents a triple threat:
1. Customer relationships will be
intermediated by digital players such
as Ecoisme or Nest (Google), which are
in a better position to meet customer
expectations with relevant offers (for
example in production, distribution,
usage, management, and support)

Exhibit 2: A value chain undergoing major transformation
PLAYERS
Digital
players
Connectivity
suppliers
Equipment
manufacturersPower distributersPower producers
EDF
E-on
ERDF
npower
UK Power
Networks
Eni
JustEnergy
ABB
Honeywell
General
Electric
Schneider
Electric
Siemens
Lora
Sigfox
Telefonica
Verizon
AT&T
Google
Cisco
Cisco
IBM
Google
Oracle
IBM
Non-core business
Core business
Desired supply
chain control
Potential/current
strategic move
IoT supply chain
components
Traditional
supply chain
PRODUCE
POWER
DISTRIBUTE
POWER
MANUFACTURE
EQUIPMENT
INSTALL
MAINTAIN
MANAGE
NETWORK
PROVIDE
CONNECTIVITY
COLLECT
DATA
ANALYZE
DATA
PROVIDE
VALUE-ADDED
SERVICES
Source AT&T Smart Grid Solutions, Telefonica Smart Utilities Solutions, IBM Smart Grid, Cisco FAN Solutions, companies websites, GE, Schneider, Siemens

2. There will be less direct revenue
from power consumption following a
bitter commercial battle, so the need to
generate income from analysis, support,
and assistance services will be even
more pressing
3. A share of the production market will
be lost, specifically for peak periods,
negatively affecting the profitability of
long-term investments in calibrated
production equipment (which can be 20
to 30 years for a power plant).
Innovation in services will come from
collecting and processing data in real time
using smart meters or networks, or both.
Players that possess the required analytical
skills, and obtain a power distribution
licence, could potentially be formidable
competitors, able to disrupt traditional
markets with packaged solutions. Google is
in this category. With Nest, Google Energy,
and teams working on new gen storage
solutions, this giant can play a key role in the
world of electrical power for a long time to
come (see Exhibit 2).
To transition successfully toward the world
of IoT, incumbent industry players must take
action on several levels:
•• Commercialise new dynamically priced
offerings to differentiate themselves and
attract high value-added customers with
precise knowledge of consumers and
the market
•• Propose new services beyond their
core activity, for example security
or insurance services for operators,
or invoicing and analytical services
for distributors
•• Use IoT technologies to optimise
operational costs (such as payroll,
subcontracting, and investment)
with predictive maintenance, remote
operations, and more effective
network regulation
•• Build partnerships to integrate
analytical skills quickly, and anticipate
the required organisational changes to
support this transition (such as moving
toward more qualified labour able to
focus exclusively on increasingly complex
network interventions).

TELECOMMUNICATIONS
BEYOND CONNECTIVITY?
EMMANUEL AMIOT
LUIS BAENA
EMMANUELLE BERSIER
LAURENT GUERRY
JAN KRAL

Telecommunications (telecom) players enjoy
a central role in the world of the Internet
of Things (IoT), where they provide the
fundamentals to individuals, households, and
companies, namely security and connectivity
solutions. These players are thus in an
excellent position to become the facilitators
or enablers of the connected experience, in
both business-to-business (B2B) solutions
and retail services.
Some may regard IoT as simply another
version of machine-to-machine (M2M),
a sort of M2M 2.0. IoT, however, goes
well beyond M2M. Telecom operators
such as AT&T have understood this
clearly and present their M2M and IoT
solutions separately.
IoT enables all companies and industries
to transform existing business models and
develop a more powerful value proposition
based on service and an unprecedented
wealth of data generated and collected by
connected objects and digital sensors.
Companies in all industries need support
from technological partners to build
innovative services around IoT. The issue
for telecom operators is how to seize the
opportunities offered by IoT to expand their
positioning beyond connectivity solutions.
The additional revenue potential, particularly
in B2B, is significant.
B2C. The key question for telecom operators
is how to define their positioning in the home,
car, and mobile ecosystems. The connected
home is nothing new. Can operators position
themselves as major players in the smart
home? Can they establish a strategy to
combine different ecosystems? Or is their
legitimacy restricted to only a few?
B2B. A first issue for operators is to position
themselves beyond connectivity and
security, by offering new value-added
services and end-to-end solutions (design,
integration, maintenance, and so on).
To reach these value layers, adequate
knowledge of the relevant verticals or
sectors is critical, and there appears to be
three ways for operators to obtain it:
•• Acquire a thorough understanding of
targeted verticals, using internal teams
and skills (with a detailed understanding
of the industry, processes, and specific
legal constraints for each market)
•• Establish partnerships to acquire
this understanding
•• Establish platforms allowing trade players
to develop their own applications.
A second issue is how to transform this data
into relevant, usable information.
If operators don’t manage to grab this
opportunity, other players will seize it,
potentially relegating operators to the role of
connectivity provider. Is it really so unlikely
that vertical players (such as industrial
specialists like Siemens or GE) become
holistic IoT solution providers limiting the
role of telecom operators to wholesale
connectivity? GE, with its Predix data
collection and analysis platform for industrial
internet applications, is only one example
among many of industrial players now taking
a position in the IoT value chain.
In the past, telecom operators have been
threatened by over-the-top (OTT) services.
How can they prevent a recurrence of the
OTT scenario?
THE INTERNET OF THINGSIOT SCENARIOS IN NINE INDUSTRIES Telecommunications

SEIZE B2C
OPPORTUNITIES
Under theseconditions,howshouldoperators
approach the IoT opportunity? The objective
fortheB2Csegmentistodefineitspositioning
within several adjacent ecosystems: the
individual (through portable technologies, or
wearables), the home, and the connected car.
For example, the connected home is
attracting players from all sides to develop
services: telecom operators (such as AT&T
with its Digital Life home automation solution,
and Orange Homelive), manufacturers of
household appliances (GE, Honeywell,
Philips, and LG for instance), high-tech
giants (Google with the Nest intelligent
thermostat, plus Apple and its HomeKit to
create devices that can be controlled with an
iPhone), traditional and online retailers (like
Amazon and Home Depot), insurers (such
as Allianz and Axa), and power distributors
(for example, British Gas). This is also true
for connected car ecosystems, where new
platforms are coming on the market (take
HomeKit and CarPlay from Apple for instance)
and new partnerships are being created (Nest
with Mercedes-Benz and Whirlpool, Android
Auto with BMW, and Audi with VW).
Behind this proliferation of players with
more or less clearly defined approaches,
it is possible to observe a certain strategic
convergence toward hubs ensuring
intelligent interactions among objects,
regardless of manufacturer (see Exhibit 1).
Hubs enable different objects to
communicate and interact together.
Although some problems must still be
worked out (including certifying objects
and making sure that everything works
intuitively, in a “plug and play” manner), the
progress is very real. Convergence toward
an IoT world is starting (see Exhibit 2).
Exhibit 1: Different connected hub strategies
BECOME AN ENABLER OF
A SEAMLESS EXPERIENCE
E.G. APPLE
CREATE AN AUTONOMOUS
ECOSYSTEM AROUND THE HUB
E.G. ORANGE HOMELIVE
INTEGRATE INTO MANY DIFFERENT
ECOSYSTEMS WITHOUT
TRYING TO FORM A HUB
E.G. PHILIPS
Source Oliver Wyman
Exhibit 2: IoT chain of control
CONTROLLING DEVICE THE HUB
TRANSMISSION
THE CONNECTED OBJECT
EXECUTION
Source Oliver Wyman

Controlling a hub means controlling access
to customer data, which is essential to create
new innovative and personalised services,
ensure customer satisfaction, and reinforce
the customer relationship.
CONVERGENCE TOWARD A
UNIQUE VALUE PROPOSITION
The smart home offering is converging to
a unique ideal value proposition, in which
solutions must be easy to install, understand
and use; innovative and diversified in terms
of choices (for example, in brands and types
of devices); perfectly integrated; safe; and
affordable. The main contenders will be able
to capture market share either based on their
existing customer base (such as Samsung,
Belgacom, Apple, and Home Depot) or by
differentiating themselves with a superior
product (like Google or Wink).
The connected home market is thus
expected to be captured by several players
rather than dominated by a single one.
However, if various ecosystems or hubs
are not sufficiently attractive (in terms of
customer experience or usage), a scenario
in which a single powerful ecosystem
dominates and becomes a de facto standard
is also possible.
The diversity of objects, usages, and players
makes it difficult to guess if there will be one
or several winners in the connected home,
or if there will be one hub or as many hubs
as usage situations (kitchen hub, home
automation hub, power hub, and so on). It
is also difficult to predict the importance of
mobility for these hubs.
MANY OVERLAPPING
ECOSYSTEMS
Will some players have the potential to cover
all intelligent home services? To answer this
question,weneedtodistinguishtwoelements.
The customer experience integration layer
(for example, Wink integrates different
ecosystems in its application). True
value can be created by saving customers
the trouble of having to juggle different
applications (such as a Philips application
for lighting or a Somfy application for blinds
and shutters). This integration could be
proposed by the most attractive underlying
ecosystem (telecom operator, Nest, and so
on) or by an OTT player with no hub control
(Wink, for example).
Underlying ecosystems. For the underlying
ecosystems, players must choose their
battles according to the business model they
want to build. Even the high-tech giants,
whether building omnipresent ecosystems
(like Apple) or redrawing the lines in entire
industries (like Google), will have to choose
their battles.
For instance, Google is positioning itself as
a power optimisation facilitator and enabler
with a whole energy arsenal (including
Nest platform, power distribution licence,
and new-generation batteries) but also as a
security and remote surveillance provider
with its cameras. Other domains could be
explored by Google to reinforce its ability to
collect relevant data for its current business
model. Amazon wants to be the premier
household supplier of consumer goods
and support services. Some operators are
offering integrated automation, security, and
infotainment solutions.
We are thus witnessing the emergence of
a number of specialised ecosystems. The
reason is simple: to create real value for
the customer, the home must be not only
intelligent but also useful. However, this
requires making home management simple
and natural. The complexity of integrating all
of the complex connected home services into
a single platform is leading to the creation of
many overlapping ecosystems. The real value

A REVOLUTION FOR THE HOUSEHOLD
APPLIANCE INDUSTRY?
Household appliances don’t like to rock
the boat, and there are few breakthrough
technical innovations in this industry.
In large appliances, induction cookers
were invented over twenty years ago,
and in small appliances, revolutionary
products like SEB’s Actifry remain the
exception. Functional innovations
like the bread machine are much
more frequent, particularly in small
household appliances.
But IoT will change the game
dramatically. Beyond the buzz created
by the rise of new players (Withings),
connected products (Cookeo) or
the commercialisation of the first
intelligent refrigerators (Samsung),
the real effects on the market are still
anecdotal – for now. But the industry
will be transformed in the years to come.
These transformations will manifest
themselves in several ways:
Functional product extensions.
Products are becoming smarter and offer
more features with new sensors. They are
communicating with the outside world
and can receive information, from a
smartphone for example.
Development of services. Value-added
services are offered that change how
products are used or improve the user
experience, like the Terraillon bathroom
scale which offers healthcare coaching
advice. The challenge will be to monetise
these services when moving away from
free-of-charge or freemium models.
Product updates. Tesla Motors blew
the automobile community away by
proposing regular software updates
for the S model to optimise car
performance. Dishwashers able to
optimise water or power consumption or
rectify design defects are about to arrive
on the market. Soon, actual usage will be
measured so that a family of five won’t
receive the same parameter settings as a
single person.
Optimised after-sale service.
Real-time analysis of household
appliances in operation will also enable
manufacturers to detect weak signals
and propose preventive interventions.
In the event of breakdown, remote
diagnosis will make it possible to
prepare interventions, and in particular
to guarantee the availability of spare
parts required: it is estimated that 40%
of maintenance activities could thus be
carried out remotely.
Interoperability. Household appliances
will be gradually attached to the sphere
of the connected home and to sub-
spheres like the connected kitchen
or bathroom. Interconnected objects
within the same sphere or sub-sphere
will foster the emergence of hitherto
unsuspected uses. New constraints will
also emerge for manufacturers, such
as the need to share data with other
players, including direct competitors.
These changes will generate enormous
value for industry players, as direct links
are established with consumers, whose
satisfaction will rise and whose usage
habits will be better known to suppliers.
In order to capture this value,
the latter must address many
challenges, however:
•• Imagine and develop new uses
linked to connectivity, but also
design new ways of marketing them
and fostering their adoption
•• Build innovative business models
induced by IoT: transfer of pricing
from objects to services, payment
based on usage, and so on
•• Rethink relationships with distributor
clients with a win-win mindset
•• Face newcomers by reinforcing
strategic control points (brands,
products, services, and so on) which
will vary from one market to another
•• Radically rethink product
development processes by adopting
an intrapreneurial organisation,
but compatible with the constraints
of dealing with dozens of diverse
markets and millions of end
customers (standards, uses, sales
channels, and so on)
•• Get geared up to collect, enrich,
organise, and analyse data, which
will be the source of all the new
value created. This is a particularly
delicate issue, because companies
must form the right partnerships,
make concessions while keeping
key information, and in very
different commercial and regulatory
environments from one region
to another.
Among the partners on whom
the manufacturers of household
appliances can rely, we feel that
telecommunications operators could
be the right allies. Indeed, they are
in a good position to provide the
required platforms and technical know-
how – without representing a threat – by
connecting products; collecting, storing,
and analysing data; and even possibly
participating in marketing.

resides in the customer experience and in
getting rid of those little day-to-day hassles to
improve the quality of life (health, child safety,
energy costs, and so on). To do this, know-
how and skills in several domains must be
combined – power production, distribution
and storage by programming household
devices, household inventory logistics, and
tracking (like Amazon). In our view, the future
will see specialised players coexisting in the
connected home.
WHAT ROLE FOR
TELECOM OPERATORS?
Telecom operators are well placed to offer
solutions that meet customer security,
automation,communication,andinfotainment
needs. Compared to Wink or SmartThings
hubs, AT&T and Orange solutions must
continue to expand their range of compatible
devices. The same applies to Nest and Apple.
Consequently, communications operators
today have the opportunity to reinforce
their existing edge, in terms of the customer
relationship and customers’ trustandto
expandtheirpositionintheconnectedhome.
They also have the ability to combine new
offerings into triple- and quadruple-play
deals to offer one-stop-shop solutions. For
example, Orange offers a pack of connected
devices, a platform and an app to manage
them, as well as a support service. Other
operators can position themselves credibly
in the sphere of personal data protection and
connected home security, and offer excellent
customerserviceandanextensivedistribution
network, with seasoned teams on the ground.
Telecom operators have different means to
succeed. Theycantargetcustomerswhowant
easy installation and support services; expand
their offering by taking inspiration from
SmartThings’ Smart, Smarter, and Smartest
packs; open their platforms to third parties;
give developers access to their application
programming interfaces (APIs); and form
partnerships with equipment manufacturers.
(See Exhibit 3.) AT&T has clearly understood
this and recently opened its Digital Life
platform to developers and selected partners.
While keeping control of customer data (and
thus control of the customer relationship),
AT&T can therefore remain competitive
against new home automation players.
Exhibit 3: Hub suppliers vs. telecom operators
Hub suppliers sell their
products in packs (e.g.
Homelive) to make the
product easier to install
and manage (e.g. Wink)
Telecom operators are
opening their platforms
to third parties (e.g.
AT&T) to expand the
choice of available
brands and connected
objects
… even if they target
different segments
SUPPLIERS OF “HUB” WINK/SMARTTHINGS
CONVERGENCE
TELECOM OPERATORS AT&T DIGITAL LIFE/ORANGE HOMELIVE
• Higher initial costs ($80-$300) but generally
less expensive than with an operator
• No contract or commitment; customers are
free to switch and have the most recent
gadgets in their ecosystem
• A wide choice of connected objects and
brands (multiple partners)
• A central management app available with
multiple scenarios (open APIs)
• Little support for installation, potential
integration problems
• No additional services (e.g. help line for
emergencies)
• Little or no initial cost, but customers must
pay for a 12-24 month contract
• Customers contractually committed for a
speciﬁc period with no option to leave or
replace products with newer versions
• Relatively limited choice of connected
object types, brands, and designs
• A central management app is provided, but
few available scenarios (currently)
• Turnkey solutions offer a better guarantee of
trouble-free operation
• Added-value services are often included in
the contract or available on top
Source Oliver Wyman, Wink, Smart Things, Orange, AT&T

B2B OPPORTUNITIES
IoT and connected objects offer telecom
players a vast range of opportunities on
the B2B market, but also risks. Companies
across the globe need new connectivity
solutions, for instance, to enable the
remote surveillance of patient health or
power service infrastructures in the home.
Businesses increasingly demand new value-
added services and sophisticated end-to-
end solutions, such as efficient patient pool
management in hospitals and healthcare
centres. Operators who want to take
advantage of the B2B opportunities offered
by connected objects must now define their
game strategy and determine the roles they
want to adopt in each case.
Exhibit 4
Source Oliver Wyman
UNDERSTAND ECOSYSTEM DYNAMICS
The IoT ecosystem includes a set of links between connected
devices. Exhibit 4 illustrates the most important links of the
connected ecosystem.
IOT VALUE CHAIN
CONNECTED DEVICES
They include intelligent devices,
objects, and sensors; autonomous
connected devices enabling, for
example, intelligent meters to be read
remotely or street lighting to be
controlled with intelligent sensors
CONNECTIVITY
Telecom and safety capacities
required to connect devices to the
network; central connectivity
platform and communication
equipment to aggregate the flow of
data collected from different devices
ACCESS TO SERVICES
Platforms of connected objects are
supported by a set of technical solutions,
a nourishing environment for business
development, and a commercialisation
space; in favourable markets, developers
can meet the specific needs of users
DATA COLLECTION
A variety of data collection, storage,
and integration solutions providers,
ranging from small specialised firms to
integrated players such as technology
suppliers or telecom operators
DATA ANALYSIS
The providers of model definition
and analysis solutions are often
small specialised structures
ENHANCEMENT OF VALUE-ADDED
PRODUCTS AND SERVICES
The ecosystem finishing line includes
the production of high-value-added
products and services

Until now, no agent has successfully
established an end-to-end presence
connecting all of these links. In the current
status quo, telecom operators, because
they control a portion of connectivity, are
very well positioned to establish a foothold
in each of them. However, players outside
the telecoms industry are starting to expand
into this field with their own connectivity
resale solutions or through partnerships
with telecom operators. Google is investing
in Project Fi and plans to serve as a mobile
virtual network operator (MVNO) in the
United States. GE has relied on AT&T
connectivity services since 2013 to offer
its customers one-stop-shop solutions for
connected objects.
Value is increasingly created by fully
exploiting the data generated by connected
devices. The players who capitalise on this
asset will reap the benefits by designing
innovative products and services whose
added value is optimised for specific
customer segments according to their
needs. These targeted solutions in turn
reinforce the customer relationship and
enable the collection of more data. For
example, rather than just selling a product,
ThyssenKrupp Elevators uses connected
sensors to offer advanced operational
optimisation, preventive maintenance, and
elevator surveillance services directly linked
to elevator usage.
CHOOSE THE
RIGHT STRATEGY
The ecosystem can be structured
horizontally by IoT activity and vertically
by industry, as illustrated in Exhibit 5.
Depending on the selected strategy, each
player takes its position in a well-
defined segment.
The horizontals serve as the foundation for
this IoT structure: connectivity and security;
connected object markets or platforms; data
aggregation and analysis; and application
development and systems integration. Upon
this foundation are the verticals, whose
object, nature, industry, and level of maturity
with regard to connected objects are highly
variable. The verticals range from the car and
manufacturing to sectors more closely linked
to connected objects, such as intelligent
cities and residential utilities (water, power,
and so on).
Telecom operators must be careful in
choosing the strategic positions to occupy
in this structure. Although it is easier to
bet on the lowest levels of the structure
(connectivity and security), they must still be
selective if they want to play a pivotal role as
integrated vertical players. The higher they
rise in the structure, the harder it will be for
them to succeed.
Indeed, at the higher levels, there are
incumbent or emerging players that have
specific expertise which telecom operators
do not yet possess.
What are the options for telecom operators,
layer by layer?
Connectivity and security are the bread
and butter of telecom operators. They can be
delivered using their principal strategic asset
(the 3G or 4G mobile network) by adapting
it to the needs of IoT (by developing a
specific core network, upgrading the
RAN, or complementing it with the mesh
network, and so on). These networks are
supplemented by new alternatives, such as
SIGFOX, or technologies like LoRa enabling
high-quality connectivity at low cost,
even for high data volumes. Companies
like Actility allow operators to adapt their
network for IoT.

With an exponential increase in the number
of the connected devices and recent
hacking incidents (Target, Home Depot, and
Anthem, to cite just a few recent examples),
security is becoming a paramount concern
for businesses. Telecom operators can
cash in on their credibility in the domain of
cyber-security by offering reliable end-to-
end solutions. Singtel managed to build
its legitimacy through a set of acquisitions,
including Trustwave, and by investing in
start-ups. Similar examples abound.
Operators can also play a role in providing
accesstoplatformsormarkets.Forinstance,
Deutsche Telekom launched a marketplace,
whiledevelopingitsbusinessinsomeverticals.
Other major telecom players have invested
in developing IoT platforms. Telefonica
introduced a platform called Thinking Things
to facilitate the creation of new products
or services connected by multiple players,
as did the Canadian TELUS. Outside the
telecoms sector, new players specialised in
these IoT platforms are booming, like PTC
with ThingWorx or Jasper with its end-to-end
connected object platform.
Aggregation and data storage. Operators
can provide either data aggregation
platforms for specific industries, such as
AT&T’s ForHealth solution, or data platforms
cutting across the verticals, such as
Datavenue launched by Orange. Datavenue
Exhibit 5: IoT ecosystem structure
FIT WITH OTHER TELECOM OPERATOR BUSINESSES
AUTOMOTIVE SMART CITIES HEALTH
CONNECTED
HOME RETAIL
MANU-
FACTURING
APPLICATIONS DEVELOPMENT AND SYSTEMS INTEGRATION
DATA ANALYSIS
DATA AGGREGATION
CONNECTED OBJECT MARKETS AND PLATFORMS
CONNECTIVITY AND SECURITY
Source Oliver Wyman

integrates open data like publicly available
information and statistics with data from
companies (banks, media, and service
providers) and accessible customer data, in
an anonymous and protected manner, for
developers and other commercial players.
The data analysis layer is currently
dominated by a set of players of various
sizes whose specific expertise enables them
to offer analysis solutions to companies in
search of new revenue sources. Ranging
from auto insurance (Treasure Data, Cobra,
and SAS) to intelligent network management
(Cisco, Oracle, and IBM for instance), these
players will capture a large share of the value
created by connected objects.
In order to materialise the potential of IoT,
companies must make sure that the data
and the intelligence obtained are used in
their traditional processes, such as customer
relationship management (CRM) and supply
chain management. The integration layer,
the natural market of software development,
is hence becoming an opportunity for
IoT enablers.
In this domain, communications operators
are in an excellent position to become
IoT enablers, allowing their customers to
differentiate themselves with IoT, optimise
their operational performance and costs,
reinforce their customer relationships,
and develop new sources of growth. Their
customers are not necessarily equipped
to manage the requisite equipment,
device platforms, data collection,
process integration systems, and so on.
In a word, IoT is a major growth driver
for communications operators, which
have a unique opportunity to position
themselves as service engines and play
a driving role in the transformation of
their customers.
At the same time, players outside telecoms,
such as GE with its Predix platform and
Schneider Electric with its Wonderware
system platform, are gaining ground
in integration and software. These
companies and many others, including
Cisco and IBM, aim to create platforms
that will compete directly with operators
in conquering this domain.

HOW SHOULD
OPERATORS
NAVIGATE THROUGH
THE FLOURISHING
IOT LANDSCAPE?
To move forward on such a complex subject
and transition successfully to IoT, operators
must advance simultaneously on five fronts:
Choose the right battles. Select a small
number of the most promising domains or
verticals, define value adding use cases, and
design technical solutions. It will nonetheless
be necessary to make some bets, including
during the investment phase, and accept
that some will fail. The value of IoT will
essentially be found outside connectivity,
in applications, service, and end-to-end
solutions. Several options can be used to get
there, including strong internal development
of certain verticals, partnerships, horizontal
platforms, and outsourcing the development
of trade applications to external developers
and third parties.
Start with the customer. Identify what B2C
and B2B customers really value and which
services could effectively meet their needs.
Starting with available data, rather than the
customer, is tantamount to mortgaging the
future of innovative business models.
Build an ecosystem. Design a rich,
well-integrated ecosystem offering
many advantages in terms of improving
customer choice in connected objects and
corresponding services, gathering more data
to analyse, getting better acquainted with
customers, creating new customised service
options, and reinforcing customer loyalty in
the process.
Develop partnerships. Build a relevant
network and clearly define the role of each
network partner (as integrator, specialised
service provider, enabler, and so on).
Adapt your organisation. Clearly define
who will be in charge of the IoT strategy.

SUPPLY CHAIN
WHY AND HOW TO DEPLOY
NEW SOLUTIONS
DAVID KAUFMANN

The Internet of Things (IoT) intrinsically has
vast potential for the supply chain. From the
supplier to the customer, from components
to the finished product, and from the factory
to the warehouse, the supply chain is the
backbone of the company or the very nerve
centre controlling the flow of processes
and data.
As our interviews with clients have shown,
most large corporations in a wide range
of industries understand the importance
of IoT for the supply chain and would like
to take advantage of these opportunities.
The speed of this realisation is accelerating
as IoT technologies are becoming more
widespread and as some competitors are
already making a move, if only in part. The
fact remains, however, that companies often
hesitate to deploy the required roadmap
because it appears confusing to them. It
also necessitates profound and lasting
transformation of the entire organisation’s
supply function.
HOW DOES IOT
TRANSFORM THE
SUPPLY CHAIN?
The IoT supply chain revolution is
principally concerned with two dimensions:
instantaneous information and the rising
volume of available data.
The supply function has already learned
how to manage constraints with thorough
planning processes and sophisticated
predictive models over time. Today, IoT
sensors enable information to be gathered
instantaneously. Data has become
available in real time and thus enables
almost immediate responsiveness. Various
companies have made inroads in this
market, such as the English Masternaut and
the American Vnomics.
These companies specifically propose to
track vehicle fleets (including their position,
speed, distance covered, and history) and
manage them in real time (taking account
of traffic, accidents, various emergencies,
and so on). This concept of instantaneous
information is naturally not limited to
shipping; it can potentially cover the entire
range of relevant information at any step in
the supply chain.
Combining this new concept of
instantaneous information with the rising
volume of available data is what will enable
IoT to attain its full impact.
SHIPPING
It is no longer just a matter of geolocation
in real time (something that has existed
for many years) but also of transmitting
real-time information concerning specific
constraints (like temperature, humidity, and
verification when a package is opened),
utilisation of truck capacity, or even driver
fatigue. The Driver Security Solution
(DSS) system deployed by the Caterpillar
equipment supplier, for instance, uses
technology to track drivers’ faces and eye
movements to assess their level of fatigue.
IoT also impacts on delivery to the last
mile. It can be used to track orders as they
arrive in real time or geolocate connected
drivers to determine their availability in the
vicinity and turn them into potential delivery
people (UberEATS). The Israeli start-up Olsi
launched Postybell, a small sensor that can
be put in mailboxes to notify users at any
distance on their smartphone when their
mail arrives. In the future, there is nothing to
prevent these sensors from tracking things
like humidity in the mailbox.
THE INTERNET OF THINGSIOT SCENARIOS IN NINE INDUSTRIES Supply chain

WAREHOUSES
With continuous flows of products and
materials, warehouses will also be a core
part of the IoT revolution. This revolution
starts with forecasting the arrival time of
trucks and automatically scanning tagged
products when they arrive, using passive or
active radio-frequency identification (RFID)
technologies, for example, depending on the
desired service. These technologies, more
efficient than bar codes, no longer require
individual and directional scanning.
Cameras can also be used to verify the
absence of damage, manage inventory,
and check compliance with certain storage
conditions in real time. Alarm systems will
automatically be triggered if predefined
environmental thresholds are surpassed
or when products are too heavy, badly
positioned, or about to fall.
All of this is done today at a constantly
rising level of granularity. Identification
and tracking can be conducted on a level
as detailed as the individual product
and at increasingly affordable prices,
sometimes just a few cents. Focused
on this segment, the Norwegian Thin
Film Electronics produces tags that can
simultaneously define a product and collect
a certain number of external data, such
as temperature.
A key piece of warehouse equipment,
the forklift is also undergoing a major
transformation with IoT. Industry giants
such as Toyota, Jungheinrich, and Fenwick
Linde, as well as logistics automation
specialists like Swisslog, are using IoT to
raise the intelligence of forklifts (to include
location tracking, speed adapted to ground
conditions, analysis of usage data, accident
reporting, and battery charge tracking).
Swisslog’s SmartLIFT technology and
Toyota’s T-Matics piloting tool are just two
examples of this transformation. What is
more, operators can also be connected to
track their movements and alert them to
risks such as collision.
BUILDINGS
IoT also contributes to a very significant
advance in the optimisation of facility and
equipment management. Indeed, the
starting and operating intensity settings
of systems (heating, ventilation, air-
conditioning, lighting, and so on) will be
increasingly correlated with actual site
activity and the need for machines and
operators, rather than being controlled by
pre-programmed time cycles.
We should also mention the impact of IoT
on logistics maintenance operations, which
will use new technologies to move gradually
from programmed to predictive activity
based on the actual state of the particular
item. Volvo Trucks and ThyssenKrupp Grain
elevators, for example, are placing heavy
bets on the potential of this transformation.
In addition to optimising maintenance plans,
the many sensors placed in buildings provide
manufacturers with invaluable information
concerning the use of their equipment and
the real needs of their customers.
AUTOMATION
At the final stage of automation, IoT can
also facilitate automated paths, ceilings,
potential hazards, mapping and navigation.
Take, for instance, Kiva Systems, which
was acquired in 2012 for $775 MM by
Amazon and whose robots currently
automate picking operations in the internet
giant’s warehouses.
IoT also optimises planning by offering
greater transparency concerning demand,
stocks, and capacity. This in turn makes it
possible to move from a forecasting and

estimation-based system, often relying on
the past, to real-time responses with no
distortion. In the future, planning will be
aided, thanks to IoT, by systems facilitating
the interconnection of various data-producing
functions within the organisation (such as
supply chain, production, purchasing, sales,
marketing, and finance). Links are created
throughout the supply chain from end to
end, between the company and the entire
ecosystem of suppliers and customers.
WHAT ARE
THE IMPACTS?
This overview illustrates the importance of the
changes induced by IoT in the supply chain
(see Exhibit 1). Observed impacts include
the cost and level of inventory as well as the
rate of service and revenues of the company.
IoT also contributes to the migration of
supply chain value toward data collection,
aggregation, and analysis activities, which are
key to establishing innovative new services.
COSTS
Shipping productivity is generating the first
cost improvements. Truck fleet management
solutions are resulting in substantial fuel
savings, around 10%. Added to this are
better fleet usage, more efficient truck
capacity usage, and fewer miles travelled
empty. IoT also helps to automate shipping-
related administrative procedures, leading
to considerable savings. More transparent
planning and improved tracking of product
quality help to reduce the need to manage
costly product returns. Operational
productivity is improved due to the time
saved on low value-added tasks (like finding
inventory or counting stock keeping units)
and by optimising the itineraries that
operators and forklifts follow.
Exhibit 1: IoT in the supply chain
IOT DOMAINS IMPACTS
WAREHOUSES
FACTORIES
SHIPPING
“END-TO-END”
SUPPLIERS AND
CUSTOMERS
Operators
Planners
Machines
Equipment
Vehicles
Buildings
INSTANTANEOUS
INFORMATION
INCREASED DATA
AVAILABILITY
TRANSPARENCY
Responsiveness
Agility
Adaptability
to needs
Green
CostsInventory
Service rate
PROVIDED
THAT DATA
IS ANALYSED
EFFICIENTLY
Energy
Transportation
Productivity
Security
Asset usage
Quality
Upstream to
downstream
Supplier
customer
Source Oliver Wyman

A powerful platform for managing IoT
data can offer real insight to facilitate the
optimisation of flows, the elimination
of conflicts and inefficiencies, and the
automation of certain tasks. Bobcat, which
deploys the SmartLIFT solution, reports
that the productivity of its forklifts rose by
25% to 30% with return on investment in
an estimated 18 months. The Kiva Systems
robots used at Amazon are reported to
reduce the cost of processing orders by
approximately 30%.
There is a cost impact not only in productivity
but also in improved security and risk
management (through fewer accidents and
less theft) and quality (by real-time tracking
of delivery temperature and other data).
The US firm Crown indicates that its InfoLink
fleet management tools have reduced
forklift accidents at its client Yamaha
Motorcycles by 30%.
STOCK MANAGEMENT
Having a precise and shared vision of
inventory levels in real time at suppliers and
customers and within the company makes
it possible to reduce strategic stock levels
significantly and align them more effectively
with actual needs. Increased transparency
of this type, combined with information
concerning expiration dates, for example,
could also substantially reduce waste.
REVENUES
More than a cost centre, the supply chain
is considered increasingly – and rightly
so – as a company profit centre. For
instance, better flow management with
IoT is translated into optimised service
rates on priority segments for customers
and expanded sales. For a certain number
of service companies, efficient predictive
maintenance on equipment under contract
has a similar effect on revenues, by reducing
the downtime of customer assets.
It is possible to imagine the emergence
of a new range of offerings based on the
potential to provide customers with higher
added value. This is particularly relevant
to the retail world, as IoT will revolutionise
direct contact with customers at the time of
purchase, while making it easier to get to the
cash register and make payment.
Whether we’re talking about optimising
operations or establishing new services, IoT
is accelerating the migration of value in the
supply chain toward the players who collect,
aggregate, and analyse data. As an example,
fleet tracking solution providers such as
Masternaut and Vnomics allow logistics
players to improve their performance and
thus offer end customers higher-quality
service. However, the value generated by IoT
is collected by Masternaut and Vnomics.
So the emergence of new IoT technologies
represents a risk of commoditisation for
incumbent players, some of which don’t
make much use of available data to improve
their customer proposition. It is becoming
critical for major supply chain players to
keep control over key data and build a
strategy aimed at monetising it by providing
better service than their competitors.
WHICH INNOVATION
APPROACH?
Although the IoT opportunity appears
significant for the supply function and the
company in general, it is advisable not

to neglect some essential aspects when
undertaking IoT projects.
Initially, the most important objectives must
be clearly defined, before even starting to
identify the IoT systems that could be used to
address these expectations. There are many
potential suppliers and technologies on the
market. Sufficient time must be taken to make
a detailed assessment of existing offerings,
without hesitating to invite some suppliers to
present their services directly if relevant.
At this stage, we strongly advise our clients
to emphasise the cross-company aspect of
solutions. Will we be able to interconnect
different company departments easily? Will
it be possible to interface with suppliers
and customers as well? Without losing sight
of the performance of analysis platforms,
what types of information will we be able
to read? Will the analysis tool be modular
and evolutionary?
IoT will provide an impressive volume of
data. But without an efficient, adaptable,
evolutionary, and ergonomic platform and
without expert resources to analyse the
collected data, it won’t be of much use.
Potential security issues should not be
neglected, either, because it is important to
ensure impermeability of the data flows to
prevent hacking.
Solid fundamentals are necessary to deploy
IoT in the supply chain. IT systems and
processes must be ready to accommodate
this change. More precisely, it is important
to make sure that the system infrastructure
is organised to process the new data and
that the processes are simple, clear, and
shared to ensure that the changes are
integrated effectively. We have encountered
companies who tried to switch too quickly
to IoT and then were forced to solve the
resulting problems with a costly step
backwards. Obstacles have included a
proliferation of IT systems that can’t mutually
communicate and the extreme complexity of
unshared processes.
Finally, deploying solutions based on IoT
means designing a real organisational
transformation programme. While it is
possible – and even advisable – to carry
out pilot tests at a particular facility, for
example, the entire organisation must
eventually evolve.
The supply function can spearhead this
effort because technology management is
destined to become a new component of
its value proposition. But the project must
not be restricted to the supply chain at the
risk of greatly damaging implementation
and missing out on the majority of potential
improvements. More than a bunch of
sensors, IoT represents a new way to think
about flows from the supplier to the end
customer. As a consequence, not just
the supply chain but also production,
purchasing, sales, marketing, and finance
will have to be active stakeholders in the
transformation, each function being involved
according to its responsibilities.
Starting an IoT project also requires answers
to a number of unavoidable strategic
questions. What partnerships or alliances
will we need? How can we transform the
organisational system (including objectives,
performance metrics, structures, processes,
and tools)? How can we support the
change (through project management,
communication, or training)? These
questions concern all company functions
and, ultimately, senior management.

LEAD AUTHOR
COMMUNICATIONS, MEDIA, TECHNOLOGY & DIGITAL
EMMANUEL AMIOT
emmanuel.amiot@oliverwyman.com
CONTRIBUTORS
AEROSPACE & DEFENSE
SÉBASTIEN MAIRE
sebastien.maire@oliverwyman.com
COMMUNICATIONS, MEDIA & TECHNOLOGY
LUIS BAENA
luis.baena@oliverwyman.com
EMMANUELLE BERSIER
emmanuelle.bersier@oliverwyman.com
GUNESH DWARIKA
gunesh.dwarika@oliverwyman.com
JAN KRAL
jan.kral@oliverwyman.com
FINANCIAL SERVICES
DAVID GIBLAS
david.giblas@oliverwyman.com
THIERRY MENNESSON
thierry.mennesson@oliverwyman.com
HEALTH
ANDREW CHADWICK-JONES
andrew.chadwickjones@oliverwyman.com
INDUSTRIAL PRODUCTS
DAVID KAUFMANN
david.kaufmann@oliverwyman.com
XAVIER RUAUX
xavier.ruaux@oliverwyman.com
GUILLAUME THIBAULT
guillaume.thibault@oliverwyman.com
RETAIL
XAVIER MUSSARD
xavier.mussard@oliverwyman.com
VALUE SOURCING & SUPPLY CHAIN
LAURENT GUERRY
laurent.guerry@oliverwyman.com
MARKETING
CAROLE BOUCHARD
carole.bouchard@oliverwyman.com
DESIGN
ADRIEN SLIMANI
adrien.slimani@oliverwyman.com

ABOUT OLIVER WYMAN
Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across 26 countries,
Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk
management, and organization transformation. The firm’s 3,700 professionals help clients optimize their
business, improve their operations and risk profile, and accelerate their organizational performance to seize
the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies
[NYSE: MMC], a global team of professional services companies offering clients advice and solutions in the areas
of risk, strategy, and human capital. With over 53,000 employees worldwide and annual revenue exceeding
$11 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance
broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary
services; and Mercer, a global leader in talent, health, retirement, and investment consulting.
For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter @ OliverWyman.
www.oliverwyman.com

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